Does ESG Investing Pay Off? The Evidence For and Against

Last updated: September 7, 2026.

Quick Answer

The evidence says ESG investing does not cost you returns, and in some periods it has added to them. A meta-analysis of more than 1,000 studies found 59% showed ESG strategies performed the same as or better than conventional ones, and Morgan Stanley's 2025 data shows sustainable funds slightly ahead in the first half and slightly behind in the second. Part of the past decade's outperformance came from money flowing into the category, which may not repeat. Aleta's sustainability reporting tracks ESG exposure and returns in the same view as the financial data.

Key Takeaways

• Of more than 1,000 studies reviewed by NYU Stern and Rockefeller Asset Management, 59% found ESG investments performed the same as or better than conventional approaches, and 14% found they performed worse (NYU Stern).

• Global sustainable funds returned a median 12.5% in the first half of 2025 against 9.2% for traditional funds, the strongest outperformance since tracking began in 2019 (Morgan Stanley).

• In the second half of 2025 the gap reversed slightly, with sustainable funds at 5.3% against 5.5% for traditional peers (Morgan Stanley).

• Sustainable fund assets reached a record $4.13 trillion at the end of 2025, even as the category recorded $62.8 billion of net outflows for the year (Morgan Stanley).

• Research forthcoming in the Journal of Finance estimates that flows into ESG portfolios added a 1.9% annual return, and that without those flows ESG stocks would not have outperformed the market between 2012 and 2023 (van der Beck).

• 30% of next-generation heirs say they are interested in sustainable and impact investing (UBS).

Why Do Investors Ask Whether ESG Pays Off?

At Aleta, we also see growing interest in ESG investments among the family offices using our sustainability reporting. At the same time, we are often confronted with the question of whether sustainable investing affects returns.

Based on current literature and our analyses, our assessment is that, overall, investing sustainably will not negatively impact your returns. However, it's important to emphasize that there are many different ways to invest sustainably, making it challenging to arrive at a one-sided conclusion.

What Are the Arguments For and Against ESG Investing?

The case for ESG improving returns rests on risk reduction and rising demand, and the case against rests on a smaller investment universe.

The subject has been extensively debated since ESG investments emerged on the investment landscape. The primary argument in favor of ESG factors having an impact on company performance is that these considerations mitigate a wide range of risks that could otherwise harm a company's growth and long-term profitability.

Furthermore, sustainability has become a crucial aspect of societal discourse and an important factor for many investors. This leads to increased demand for products focused on sustainability and promotes returns.

On the other hand, the main counterargument is that opting for sustainable investments might lead to missing out on investment opportunities and returns. This stems from excluding certain companies from your investment universe, which could potentially provide extra returns.

The prevailing viewpoint often suggests that if you exclude the so-called "sinful" companies, others will invest in them instead, potentially leaving a higher expected return for investors who do not consider responsible investment in their investment decisions.

What Does the Research Say About ESG Returns?

There is still no definitive answer as to whether ESG investments are financially rewarding, aside from ethical and moral considerations. One of the significant challenges in reaching a common conclusion in this area is the wide variation in terminology within sustainable investment and the lack of a unified standard for ESG measurement.

This means, for example, that the same company can receive different ESG ratings from various analytical sources. It also means that analyses and studies examining the relationship between sustainability and performance can employ vastly different approaches. However, it appears that research over the last five years has yielded more consistent results. That inconsistency is also why family offices increasingly hold ESG data next to financial data in one reporting layer, which is what Aleta's sustainability reporting does, so a portfolio's ratings, exposures, and returns can be read on the same basis rather than provider by provider.

In a 2021 meta-study, NYU Stern Center for Sustainable Business and Rockefeller Asset Management analyzed over 1,000 studies published between 2015 and 2020. Among the studies focusing on the relationship between sustainability and performance based on investment factors such as alpha or Sharpe ratio, 59% indicate that ESG investments yield similar or better results than conventional investment approaches. Only 14% show negative results.

The results thus indicate that as an investor, you should not be so afraid that it will cost you in returns if you choose to incorporate sustainability into your investment strategy. On the contrary, it suggests that companies with strong ESG ratings yield at least equally good results as conventional investments.

It is essential to remember, however, that historical returns are never a guarantee of future returns. Additionally, the studies can only establish a correlation between a company's ESG rating and its financial performance, not explain the causality.

However, research by Philippe van der Beck, forthcoming in the Journal of Finance, concludes that the performance of ESG investments over the past decade has primarily been driven by price pressure from flows into sustainable products, adding an estimated 1.9% a year, and that without those flows ESG stocks would not have outperformed the market between 2012 and 2023. This has resulted in high realized returns that might not necessarily reflect high expected returns going forward.

How Have ESG ETFs Performed Against the MSCI World?

As an example, we have compared three funds that consider sustainability with a comparable fund that does not. Specifically, we have compared the MSCI World ETF with three ETFs, all based on the MSCI World but incorporating different ESG factors.

You can see an overview of the funds below:

Source: BlackRock, returns as of June 2023.

As shown in the table above, MSCI World ESG Screened has the lowest rating among the three ESG ETFs, while MSCI World SRI has the highest ESG rating.

We have examined the performance of the three ESG ETFs in relation to the broader MSCI World index, considering the timing of each ETF's launch.

In all three cases, the ESG ETFs had outperformed the MSCI World as of June 2023, when this comparison was run. This means that if you had simply invested in the broad index instead of one of the funds incorporating ESG factors, you would have missed out on additional returns.

How Did Sustainable Funds Perform in 2025?

The most recent broad data comes from Morgan Stanley's Institute for Sustainable Investing, which tracks median returns for sustainable and traditional funds globally using Morningstar data.

In the first half of 2025, sustainable funds delivered their strongest outperformance since the Institute began tracking in 2019. In the second half, the picture flattened, with sustainable funds slightly behind, largely because they are more concentrated in European and global mandates that lagged US markets in the period. Assets in sustainable funds nonetheless ended 2025 at a record $4.13 trillion, even as the category recorded $62.8 billion of net outflows for the year.

Two years of data point the same way as the longer studies: the return difference between sustainable and conventional funds is small in either direction, and geography and sector mix explain more of it than the ESG label does.

Does Sustainable Investing Pay Off?

We cannot provide you with a definitive answer, but all indications suggest that it does not significantly affect returns.

Our recommendation is therefore clear: If you are considering sustainable investing, go ahead and get started.

However, you should not invest in sustainability solely for the sake of extra returns, nor should you avoid it because you fear it will affect your returns. Ultimately, it is about making a positive impact on the world with your investments while also achieving good returns.

Our recommendation is for you to first consider your requirements and preferences for sustainability and how much weight it should carry in your portfolio. This way, you can develop an ESG strategy for your investments that can complement your current investment strategy, striking a balance between your goals for returns, risk, and sustainability.

Once that strategy is set, the work is tracking the portfolio against it, and Aleta's sustainability reporting sits alongside the financial reporting so ESG exposure, ratings, and returns can be monitored in the same view.