ESG investing involves taking environmental, social, and governance factors into consideration, alongside financial ones, when making investment decisions. Figures from the first half of 2026 suggest that ESG investing can help investors align their investments with their values, while some sustainable funds may also outperform traditional peers.
According to data from Morgan Stanley (10 September 2026), sustainable funds returned a median of 4.9% in the first half of 2026. This compares with a median return of 4% for traditional funds.
It’s important to note that investment returns cannot be guaranteed and that past performance is not a reliable indicator of future performance. However, the figures challenge the assumption that ESG investing automatically means sacrificing returns.
Yet, the data also shows that net inflows into sustainable funds in the first half of 2026 were substantially lower than those into traditional funds. Indeed, sustainable funds attracted $36 billion in net inflows between January and June 2026 and accounted for just 6.1% of total fund assets.
ESG investing isn’t suitable for every investor, but some could be missing out on opportunities if they only consider traditional funds.
Greater exposure to equities helped boost ESG funds
Morgan Stanley explains that one reason sustainable funds outperformed their traditional counterparts is a greater exposure to equities. Indeed, 56% of sustainable funds are invested in equities compared to 41% of traditional funds. This was one factor contributing to sustainable funds outperforming in all four major investment regions assessed.
The median sustainable equity fund achieved a return of 9% in the first half of 2026, which was sufficient to offset weaker performances in other asset classes, including -1.3% for sustainable fixed-income funds.
There are other reasons why sustainable funds have the potential to outperform traditional ones.
Research published on PubMed Central (June 2021) suggests that portfolios with ESG criteria are less volatile than market benchmark portfolios.
These findings were further supported by research from Durham University (25 March 2026), which suggested that companies that adopt ESG practices are less likely to face corporate failure or unstable earnings.
The researchers note that ESG practices could help firms build resilience and strengthen relationships with stakeholders. As a result, they could be in a better position to weather periods of uncertainty and provide investors with more stability.
Businesses that consider ESG factors may also focus on long-term outcomes that could support future profitability. For example, an ESG-focused business may already be working towards reducing energy consumption. This could reduce their exposure to energy price volatility and help them work towards net zero targets set by governments.
Look past performance when assessing investment opportunities
While higher than average returns could make an investment opportunity tempting, it’s important to look past the headline figure.
A strong performance over six months provides only a snapshot. When making investment decisions, you’ll often benefit from considering long-term trends and assessing a company’s prospects.
In addition, you shouldn’t add an investment to your portfolio based on the prospect of higher returns alone. You should also consider the level of risk associated with the investment and how it fits into your overall strategy.
Get in touch
If you’d like to review your investments, including whether investments that consider ESG criteria could be appropriate for you, please get in touch. We could help you balance your investment goals with your values.
Please note: This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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