ESG investing is surrounded by myths that might put investors off finding out more and assessing if it could be something that suits them.
ESG investing involves reviewing investment opportunities and considering environmental, social and governance factors alongside financial ones. Your aim is still to deliver a financial return to support your long-term goals, and it remains important to consider areas like your risk profile.
Here are six common myths and why they’re not accurate.
Myth 1: ESG investing will harm your investment returns
When you invest, you want to create a return that will help you reach your goals. So, it’s understandable that he myth that ESG investing means lower returns would concern some investors.
Yet, the data doesn’t support this myth. In fact, the opposite might be true.
According to a report from Morgan Stanley (8 September 2025), sustainable funds outperformed traditional funds in the first half of 2025. Over the six months, sustainable funds delivered median returns of 12.5%, compared to 9.2% for traditional funds.
Choosing to make ESG part of your investment strategy doesn’t have to mean lower investment returns.
Remember, investment returns cannot be guaranteed, whether you’re incorporating ESG factors or not. You should consider what investments and level of risk are appropriate for you before you invest.
Myth 2: ESG investing is just a fad
ESG investing might seem like a relatively new fad, but its roots go back decades. For example, some investors chose to divest from South Africa during the 1960s and 1970s in protest against the country’s system of apartheid.
The first mutual fund that factored in social and environmental criteria – the Pax World Fund – was launched in 1971. Since then, investors who want to consider ESG factors have had more choices.
ESG investing is more than a fad that’s caught the attention of a few investors; it could form part of your long-term investment strategy.
Myth 3: ESG investing is only about climate change
Climate change is important, but it’s just one area that ESG investors might consider.
ESG investing encompasses a broad range of topics, from human rights abuses in supply chains to the amount of waste produced by a company, across the three pillars – environmental, social, and governance.
As a result, you’re likely to find ESG issues that resonate with you.
Myth 4: ESG investing is about excluding investment opportunities
Excluding businesses that don’t align with your values is one way to make ESG investing part of your portfolio. However, it’s not the only option.
If an exclusion isn’t attractive to you, you might take a best-in-class approach where you favour firms that are leading the way with ESG practice, or focus on a particular ESG issue, such as earmarking a portion of your portfolio to invest in organisations at the forefront of clean energy.
There are many ways to make ESG investing a part of your portfolio without excluding opportunities. Your financial planner can help you create an investment strategy that suits your needs.
Myth 5: ESG investing only applies to stocks and shares
While ESG investing tends to focus on shares, you can invest through other assets and apply ESG principles too. For example, you could purchase green bonds, which are used to raise capital for projects that will have a positive effect on the environment or communities.
As a result, you can incorporate ESG investing into your portfolio in a way that aligns with your goals.
You could also use ESG criteria in other parts of your financial plan. For instance, you might review the green credentials of banks when deciding where to open a current account.
Myth 6: ESG investing doesn’t drive real change
One of the challenges of ESG investing is assessing what impact your decisions are having, and it can sometimes appear to do little to drive real change.
Yet, by investing in companies that align with your values or using your shareholder power to encourage change, you can make a difference.
ShareAction is an organisation that aims to drive change through responsible investment. Among its 2024 successes (7 February 2025), it notes that following engagement, Greencore, Legal & General, and Schroders published their first ethnicity gap report.
Get in touch to discuss ESG investing opportunities
If you’re interested in ESG investing, we can help. We’ll work with you to understand which opportunities might align with your values and your financial goals. Please contact us to arrange a meeting.
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.