Performance was a major headwind for the asset class last year. Strategies with high relative active share struggled as mega-cap technology companies, often underweighted in ESG portfolios, drove significant index returns. Carbon-intensive sectors and defense stocks also outperformed, areas where many sustainable funds have limited or no exposure.
One clear bright spot: renewable energy stocks staged a significant recovery. The Morningstar Global Renewable Energy Index posted an annual gain of 24.8% in 2025, outpacing both the Morningstar Global TME Index (17.4% return) and the Morningstar Global Energy Index (13.8%).
This rebound came after four years of poor returns driven by elevated interest rates, materials inflation, and supply chain disruptions.
The best-performing renewable energy fund in Europe was LSF Solar & Sustainable Energy, with a gain of 73%, followed by Fineco AM MarketVector Global Clean Energy Transition Sustainable ETF at 72%. BGF Sustainable Energy, the largest European-domiciled renewable energy fund with USD 4.1 billion in assets, rose more than 33%.
Despite current headwinds, investor interest in sustainable investing remains resilient at the individual level. A Morgan Stanley Sustainability Institute survey found 88% of global individual investors are interested in sustainable investing, with younger generations showing the strongest engagement.
