The sustainability investing boom that defined the past decade is hitting turbulence. Impax Asset Management, one of the UK’s largest sustainable and impact-focused investment firms, has reported net outflows of £13 billion over the past year, reflecting a broader investor retreat from some ESG (Environmental, Social, and Governance) strategies.
This shift highlights a changing investor landscape—one where rising interest rates, political backlash against ESG, and underperformance in green equities are prompting both institutional and retail investors to reassess their exposure to sustainability-linked funds.
The news is a major signal that even established players in the ESG sector are not immune to the shifting tides of global capital allocation.
Impax: From ESG Pioneer to Market Pressure
Founded in 1998, Impax Asset Management built its reputation as a pioneer in sustainable investing, focusing on companies that deliver positive environmental or social impact.
By 2021, during the height of the ESG investing boom, Impax managed over £40 billion in assets and became a cornerstone of Europe’s sustainable finance movement.
However, recent data suggests that the tide may be turning.
The company disclosed that £13 billion in assets flowed out of its funds in the past 12 months, reducing total assets under management (AUM) to roughly £29 billion.
The decline stems from a combination of client redemptions, weaker market performance, and lower investor appetite for thematic ESG strategies that once promised both returns and impact.
The Broader Context: A Cooling ESG Market
Impax’s outflows are not an isolated event. Across the global asset management industry, ESG and sustainable investment funds have experienced widespread redemptions since late 2023.
Data from Morningstar shows that European ESG equity funds saw €40 billion in net outflows during the first half of 2025 — the largest such decline since records began.
Several factors are driving this reversal:
1. Political Pushback Against ESG
In both the U.S. and Europe, the politicization of ESG has created a polarized investment environment.
In the U.S., several states have restricted public pension funds from investing in ESG strategies, labeling them as ideologically driven rather than performance-focused.
Meanwhile, in the UK and EU, debates over “greenwashing” and inconsistent ESG reporting standards have also reduced investor confidence.
2. Interest Rate Headwinds
Higher interest rates have changed the return profile of ESG investments.
Renewable energy, clean tech, and infrastructure projects often require large upfront capital, and higher borrowing costs make them less attractive compared to short-term, income-generating assets like bonds or dividend-paying value stocks.
3. ESG Underperformance
Many ESG funds have underperformed traditional benchmarks since 2022.
Sectors heavily weighted in ESG portfolios—such as clean energy, technology, and consumer staples—have lagged behind cyclical and value-oriented sectors like energy, materials, and financials.
This performance gap has pushed investors toward value-based and diversified global equity strategies, eroding ESG inflows.
Impax’s Strategic Response
Despite the challenging environment, Impax remains committed to sustainable finance.
The firm emphasized that the current phase reflects a “temporary normalization” after years of rapid expansion in ESG markets.
According to Ian Simm, CEO of Impax Asset Management, the company continues to see strong long-term demand for sustainability-aligned investment solutions:
“We believe the transition to a more sustainable economy is unstoppable. However, market volatility and shifting sentiment are testing short-term investor patience.”
To navigate the downturn, Impax has begun diversifying its product lineup, focusing on:
- Broader equity strategies that integrate sustainability factors without strict exclusions.
- Thematic funds targeting resource efficiency, water, and biodiversity.
- Private market initiatives, especially in clean energy and infrastructure.
This pivot aims to maintain Impax’s leadership in the ESG space while appealing to investors seeking both impact and financial resilience.
Institutional Investors Rethinking ESG Allocations
The £13 billion in outflows from Impax also mirror broader institutional reallocations across the ESG landscape.
Large pension funds, sovereign wealth funds, and insurance companies are trimming ESG allocations amid growing scrutiny over returns, transparency, and cost efficiency.
For instance:
- Some European pension funds have reduced exposure to thematic green equity funds, citing volatility and limited liquidity.
- U.S. endowments are favoring “ESG integration” strategies over pure ESG mandates—meaning sustainability is one factor among many, not the core focus.
The OECD recently noted that ESG funds have seen a 12% decline in institutional assets since 2024, even as sustainable bond issuance continues to rise.
This suggests investors are not abandoning sustainability altogether—they are simply seeking different vehicles for exposure, such as green bonds and transition finance instruments.
The ESG Backlash: A Global Perspective
The ESG backlash has taken different forms around the world:
- In the United States, ESG has become a cultural flashpoint, with some politicians framing it as “woke investing.”
- In Europe, the criticism focuses more on greenwashing—where funds claim sustainability credentials without measurable impact.
- In Asia, particularly Japan and Singapore, ESG remains a growing theme, but investors demand more concrete data on carbon reduction and social impact metrics.
These differing narratives highlight a crucial reality: ESG investing’s future depends on credibility, data transparency, and tangible results, not slogans.
Investor Sentiment: From Hype to Maturity
The shift away from ESG does not necessarily signal failure—it may indicate the maturing of sustainable finance.
The early 2020s saw an explosion of ESG-themed products, many launched hastily to capitalize on investor enthusiasm. As the market evolves, investors are distinguishing between marketing-driven ESG and performance-driven sustainability.
In this next phase, ESG strategies must prove value through data—showing measurable carbon reductions, social outcomes, or governance improvements.
As PwC reports, nearly 65% of investors now demand quantifiable ESG performance metrics before committing capital.
The Long-Term Case for ESG Still Stands
While 2025 may be a year of retrenchment, the structural drivers behind ESG investing remain powerful.
The global push toward decarbonization, renewable energy adoption, and corporate accountability continues to create long-term opportunities.
The International Energy Agency (IEA) projects that clean energy investment will exceed US$2 trillion annually by 2030.
Furthermore, European Union regulations such as the Corporate Sustainability Reporting Directive (CSRD) will compel thousands of companies to disclose detailed ESG data—fueling demand for sustainable investment expertise.
Impax’s long-standing experience in sustainable finance could position it well once investor confidence rebounds.
Performance Trends: ESG Funds vs Traditional Funds
Performance data for 2024–2025 illustrates why investors have been cautious.
According to Bloomberg Intelligence, global ESG equity funds have returned 2.3% year-to-date, compared with 8.9% for non-ESG global equity funds.
This underperformance largely stems from exposure to renewable energy and technology stocks, which have struggled amid higher financing costs and supply chain challenges.
However, ESG bond funds—particularly those holding green and transition bonds—have performed better, buoyed by strong demand from governments and corporations financing decarbonization projects.
Market Analysts: Caution, Not Capitulation
Financial strategists suggest that the ESG outflows may represent a short-term correction, not a collapse.
Analysts at UBS Asset Management argue that “ESG strategies are undergoing a natural consolidation phase after years of overextension.”
Similarly, Morgan Stanley maintains a long-term bullish view on sustainable investing, noting that institutional capital will continue flowing into climate adaptation and clean infrastructure once economic conditions stabilize.
The key challenge for asset managers like Impax will be rebuilding trust with investors by proving that sustainability and profitability can coexist—even in volatile markets.
Future Outlook: Redefining ESG Investing
The next generation of ESG investing will likely look very different from the last.
Expectations include:
- Integration over isolation: ESG factors will be integrated across all asset classes rather than confined to thematic funds.
- Data-driven validation: Investors will demand quantifiable results, with ESG ratings becoming more standardized and regulated.
- Focus on transition finance: Capital will flow to companies making tangible progress in reducing emissions, not just those already “green.”
- Private markets growth: Private equity and infrastructure funds focused on sustainability will attract institutional interest.
For firms like Impax, adapting to this evolution will be crucial to regaining growth momentum.
Conclusion: ESG’s Evolution, Not Its End
Impax Asset Management’s £13 billion in outflows serve as a wake-up call for the global ESG investment community.
After years of extraordinary growth, the sector is facing a necessary reckoning—a phase of introspection, realignment, and recalibration.
While the short-term picture may look challenging, the long-term case for sustainable finance remains intact. The transition toward a low-carbon, inclusive global economy continues, and investors who align with credible, data-driven ESG strategies will be well-positioned for the next wave of growth.
For now, the message is clear: ESG investing isn’t dead—it’s maturing.
Impax Asset Management outflows, ESG investing 2025, sustainable finance trends, impact investing decline, ESG fund performance, green investing analysis, investor sentiment ESG, sustainable funds 2025, ESG backlash UK, clean energy investments, sustainable investing future, ESG vs traditional funds, asset management trends, ESG data transparency, Impax ESG funds, Morningstar ESG data, environmental finance 2025, institutional investor flows, ESG regulation UK, climate finance