While ESG may be politically sensitive, Invesco reports that inflows continue to build. Natixis IM’s US Media Summit in New York showed just how sharply opinions on the theme diverge across the Atlantic.
Managers from the group’s boutique affiliates in Texas and Paris offered journalists completely opposite views on the future of sustainable investing during the event.
“If there is a bubble, it’s in ESG,” said Adam Rich, deputy CIO and portfolio manager at Houston-based Vaughan Nelson, who didn’t miss a beat in challenging the enthusiasm around it. A lot of allegedly “sustainable” themes have lived longer than they should because governments kept them on life support, he pointed out.
Policy argument ‘misses the point’
Sitting next to him on stage, the Paris-based sustainable equities manager Soliane Varlet of Mirova pushed back firmly. “I do not agree. There is no bubble in ESG investments,” she said, admitting that some sustainable segments have struggled in recent years. According to her, the policy argument “misses the point.”
Invesco’s latest ETF report shows that European sustainability funds just had their second-best month on record. ESG ETFs took in 13.2 billion dollars in October, more than a third of all Ucits ETF inflows and the fattest haul since 2023.
All ESG ETF subcategories recorded inflows in October, including climate funds and green energy thematic funds. Even US Equity ESG ETFs have seen a recovery after sharp outflows early in the year.
Trend recycling
ESG is simply “another iteration of an investment trend that repeats every decade”, Rich told Investment Officer following the panel discussion. “In the past it was SRI or sustainable growth or value-based. Today it carries the ESG label.”
He emphasized that when political support fades or budgets tighten, those business models come under pressure. A prime example is sustainable energy.
“The energy density doesn’t make sense. The physics aren’t there, the economics aren’t there,” he said, adding that once subsidies fade, “the industry collapses.” Rich said he sees the initial stages of that process unfolding already, with earlier ESG policies “collapsing globally” as budgets tighten.
Governments are stepping back from parts of the sustainability agenda because they can no longer afford to fund it. “They have to spend more and more money to be able to support the industries, and that is too costly right now.”
Structural forces
On the other hand, Varlet points to structural forces driving demand, especially the surge in electricity needs from AI data centers, re-industrialization and energy-security policies. “Energy infrastructure is a very nice theme to be positioned in. The grid is necessary to connect energy,” she said. She added that renewables are set to benefit because they remain among the cheapest and fastest ways to add new power capacity.
Invesco’s research team underscores the same point, noting that renewable solutions are often the quickest and most cost-effective way to meet the rising power demand generated by AI data centers.
Still, a comparison between the iShares Global Energy ETF and its clean variant shows that investments in traditional energy companies have fared significantly better in the past five years.
Energy ETFs point to ‘clean’ underperformance
Expanding opportunities elsewhere
Rich argues that the more compelling opportunities in the energy transition lie outside the typical ESG playbook. “Right now, I think LNG is the sweet spot,” he said. The market, in his view, is misreading supply conditions. “There is an illusion of abundance right now,” he said, predicting that adoption of liquefied natural gas could “double in the next ten years.”
However, he warned that the biggest beneficiaries will not be the upstream producers — the better positioning sits downstream. “The companies that will adopt LNG are the ones that benefit,” he said.
Policy reversals can also unlock growth in sectors ESG investors have avoided. Defense spending is the clearest example, he said. “The world is deglobalizing. Trump has changed a lot. Many people initially thought it would be bad for international markets, but it’s been quite the opposite.”
For Rich, the rapid change in sentiment around defense illustrates how quickly industries expand when political incentives realign, and why investors should expect more capital to move into the sector as geopolitical tension rises.
Underpinned by underlying forces
Subsidies come and go, said Varlet, but the underlying forces reshaping the economy: demographics, technology, climate and natural resources, and governance do not.
“These trends will happen whether policy is there or not,” she said. Aging populations, rising chronic disease, climate adaptation, waste and water management, electrification, none of these depend on who controls Congress or the Élysée. Subsidies can distort the journey, she conceded, but “they do not determine the long-term trajectory.”
Market participants still underestimate both the risks of poor ESG practice and the economic tailwinds for sustainable industries, she added.
ESG as risk
Eric Liu of Natixis’ US unit Harris Associates was the only one on stage who refused to treat ESG as a belief system at all. “We view ESG as risk,” he said. If an environmental or governance problem threatens future cash flows, he adjusts the valuation. If not, it is irrelevant.
Harris owns stocks many ESG frameworks shun, including Glencore. Coal exposure is a risk, Liu said, but risks have prices. Meanwhile, the company is one of the world’s largest copper producers, and if electrification is real, copper demand should rise.