Good morning everyone.
Today I want to spend some time discussing the responsible investment landscape as we see it today, as well as some of the key areas we are currently working on and expect to focus on in the years ahead. Unsurprisingly, given much of what has already been discussed today, many of these themes begin with developments in the White House.
At the start of 2025, many people within the responsible investment community felt a sense of trepidation about what lay ahead. Even before then, there had been growing skepticism around responsible investing and the role of ESG and sustainability factors as drivers of investment performance. Over the previous five years, flagship sustainable investment products, such as clean energy strategies, had significantly underperformed broader equity markets. As a result, investors began pulling back from some of these allocations, and questions emerged about whether the ESG movement had gone too far.
This backdrop was further intensified by Donald Trump’s return to the White House, accompanied by a commitment to dismantle ESG-related policies and support traditional energy development. With these ingredients in place, many believed 2025 could become an especially challenging year for the responsible investment industry.
The reality, however, proved more nuanced. There were certainly significant challenges. Shareholder rights in the United States came under pressure, particularly through actions by the SEC, resulting in fewer ESG-related shareholder proposals. According to Morningstar, these proposals declined by 22% year-over-year. Renewable energy sectors also faced headwinds, with industries such as offshore wind seeing substantial pressure. Companies like Ørsted suffered significant declines in valuation and experienced bond downgrades and widening spreads.
Across the industry, many net-zero initiatives lost momentum. One of the clearest examples was the effective collapse of the Net-Zero Banking Alliance as a meaningful force. Sustainable equity funds continued to experience outflows, with estimates suggesting $63 billion of redemptions from U.S. sustainable funds and $61 billion from global sustainable equity funds. Interestingly, however, ESG bond funds attracted approximately $32 billion of inflows, highlighting a notable divergence in investor preferences.
There were also regulatory rollbacks. In the United States, SEC disclosure requirements relating to climate risk and opportunities were scaled back. Europe experienced its own adjustments through initiatives such as the EU Omnibus legislation, designed partly to improve the competitiveness of European companies by simplifying reporting requirements.
Despite these challenges, investors increasingly looked beyond the political noise. Asset owners, in particular, remained committed to sustainability objectives. Surveys conducted by organizations such as FTSE Russell showed little evidence of a meaningful shift in sustainability priorities. In many cases, the use of ESG and sustainability criteria within mandates actually increased, driven by climate-related concerns and fiduciary responsibilities.
Our conversations with companies revealed a similar pattern. Sustainability initiatives have not disappeared; they are simply less visible. Companies continue to work on sustainability-related goals, though these efforts are not always featured prominently in public communications. This was evident through our engagement activities throughout 2025.
We also observed an interesting trend in capital allocation. Investors continued directing capital toward energy transition opportunities, demonstrating that many are taking a longer-term view of structural themes. Regulatory simplification has also raised an important question: rather than representing a rejection of sustainability, could some of these changes simply reflect a sensible refinement of previously complex frameworks?
As a result, we believe responsible investment is evolving toward a more pragmatic and accountable model. Sustainability considerations remain important, but they are increasingly being viewed through a practical investment lens.
One example of this can be seen in market performance during 2025. While many expected traditional energy sectors to outperform amid pro-fossil-fuel policies, performance was more mixed. The S&P 500 delivered strong returns, but global energy indices were largely flat and portions of the U.S. energy sector declined modestly. Meanwhile, clean energy investments experienced a notable recovery and significantly outperformed expectations.
This reflects a growing recognition that long-term trends remain important. Investors increasingly view clean energy as essential to supporting the growing demands of artificial intelligence. The enormous energy requirements associated with AI infrastructure, including data centers, have reinforced the strategic importance of renewable energy sources. This shift has provided renewed support for thematic investment approaches focused on long-term structural opportunities.
At Insight, our focus remains on financially material sustainability risks as they exist today, rather than as we might wish them to be. One key area is climate change and the financial implications of physical climate risks.
We have developed tools to analyze climate-related risks for several years, but our focus is now broadening across asset classes. We are examining whether certain physical risks, such as wildfires or floods, pose greater short-term threats than longer-term chronic risks. We are also considering which asset classes may be most exposed, particularly those with concentrated geographic exposure, such as municipal bonds or certain asset-backed securities.
Questions we are exploring include whether specific climate risks are more likely to impair value over an investment horizon, which asset types face the greatest vulnerability, and whether investors should begin incorporating regional climate risk premiums into valuation models. Recent work on climate risk within sovereign bonds has highlighted substantial differences in exposure across regions, creating important implications for portfolio construction.
Another major area of focus is artificial intelligence. Beyond its growth potential, we are increasingly examining the ESG implications of AI deployment. Last year, much of our work concentrated on environmental considerations, particularly the energy and water requirements of data centers. We assessed these challenges across both public and private market issuers.
Our focus is now expanding to governance. While markets are enthusiastic about AI-related growth opportunities, we also see potential risks associated with poor implementation. Weak governance, inadequate controls, or insufficient oversight could create significant operational and credit risks. We are therefore analyzing what best-practice AI governance frameworks should look like and evaluating the controls organizations have in place to manage these emerging risks.
Beyond company-level engagement, we are also broadening our stewardship efforts to operate at a system-wide level. While investors do not set public policy, they possess unique insights into capital flows and investment decision-making. During 2025, we formalized our thinking through a policy advocacy framework focusing on areas where investor perspectives can contribute meaningfully to policy discussions.
This work has included advocating for greater standardization of government bond disclosures, participating in discussions around national transition planning, contributing to debates on mobilizing transition finance, and continuing our leadership within the green bond market. We have also worked closely with industry organizations to improve best practices and enhance transparency around the environmental impact of sustainable financing instruments.
Finally, our experience with clients reinforces the continued importance of responsible investment. While sustainable equity funds have seen outflows, demand for tailored fixed-income solutions that combine sustainability objectives with financial performance remains strong. Throughout 2025, we onboarded a wide range of mandates across multiple geographies and investment strategies.
Climate considerations remain at the forefront of client priorities, but we are also seeing growing interest in achieving measurable real-world impact through investment mandates. This demand is global, extending across Europe, Australia, the United States, and other regions, although Europe continues to be a key center of activity.
Importantly, ESG capabilities have become a structural component of our business. While some clients focus on basic exclusions, an increasing proportion are incorporating specific sustainability targets directly into their mandates. Today, nearly a quarter of our total credit assets under management include binding sustainability-related requirements.
The key takeaway is that while the responsible investment landscape is changing and operating in a more volatile environment, responsible investing remains highly relevant. It may not be as visible as it was a few years ago, but it continues to play an important role in delivering client outcomes. The emphasis is increasingly on practicality, accountability, and financial materiality, but the commitment to responsible investment remains firmly in place.
