‘Green fatigue’ sweeps the ethical investments market
Due to consumer demand, mandatory super and stringent greenwashing regulations, Australia’s track record on ethical investing is highly regarded.
Or at least it was.
Amid concerns about performance and the anti-woke backlash the US has stirred up, the nation’s appetite for investing its hard-earned savings in companies with a conscience has fallen off a cliff.
Support for funds with a strong environmental, social and governance (ESG) focus, driven mostly by younger investors, remained high through 2021.
The industry is now experiencing green fatigue.
Trading fell 60 to 70 percent, according to a review of the 250 most traded instruments on the popular investment tracking platform Sharesight.
“What we’re seeing, particularly in ESG, is a real decline in interest in the asset class,” said Douglas Morris, chief executive of the Sydney and Wellington-based firm.
“This is based on a lot of new acquisition activity, buy/trade activity that we are seeing for ESG products compared to other types of investments.”
Founded in 2008, Sharesight has nearly one million customers worldwide, including hundreds of thousands in Australia.
Just over four years ago, ESG-focused exchange-traded funds such as Betashares’ Global Sustainability Leaders and Australian Sustainability Leaders, as well as Vanguard’s Ethically Conscious International Share Index, were widely held in Sharesight portfolios and were among their most traded instruments.
This was before Russia invaded Ukraine; During this period, there was great excitement from retail investors towards trading in the wake of the COVID-19 pandemic.
“People were locked inside and they had government stimulus money,” Mr Morris told AAP.
“Interest rates were low and they were doing a lot of trade and investment.”
Stock markets had performed so well up to that point, and moving into ESG investing seemed “almost like icing on the cake.”
But by the end of 2025, interest in such funds has dropped significantly in Sharesight’s rankings or has completely disappeared from the list of the 250 most traded instruments.
No dedicated ESG or ethical funds appeared among Australian investors’ most traded assets in the 12 months to April.
This is despite exchange-traded funds generally growing from 8 per cent to 30 per cent of Sharesight members’ investments, Mr Morris says.
Instead, there has been a strong swing toward major U.S. tech companies, cryptocurrency, uranium and nuclear energy stocks, defense and aerospace companies, and leveraged Nasdaq-linked ETFs.
“Tech stocks have become the most popular investment over the last few years,” Mr. Morris says.
“You know, you have your Apples, your Googles, your NVIDIAs, your Microsofts, your Teslas, and a host of other players in the AI space now.”
Mr Morris says ethical investments are not performing that well, with only one in seven active ESG capital managers beating market benchmarks.
It was also a mistake to assume that young investors would put their money into ESG at the expense of higher returns just because they remained politically centred.
“At the end of the day, they still want that strong return, right?” he says.
ESG investing has also been swept up in the culture wars in the US, with the ruling Republican Party attacking what it sees as “woke capitalism”.
Supporters say ESG investments are merely a tool to manage the risk posed by climate change and weak governance structures, and that workforce diversity is good for business.
Lax governance standards have recently led to scandals at Australian companies such as Star Entertainment Group and Corporate Travel Management, which have cost investors large sums of money.
Mining giant Rio Tinto faced a federal parliamentary investigation in 2020 over its destruction of the 46,000-year-old rock shelter at Juukan Pass in the Pilbara.
Dugald Higgins, head of responsible investing at Melbourne-based Zenith, says based on data he’s seen, ESG funds in Australia and Zealand are still growing, while shrinking in the US and flat in Europe.
“So there’s definitely not a lot of inflow, and certainly there have been some funds that have closed,” he says.
“But ultimately the money is still coming in.”
Mr. Higgins told AAP ESG has been going through a “cycle of deception” over the past few years, which he described as part of the normal overreach for new products.
“You get to a peak of excitement and normally then, of course, reality bites and people realize that either everything is not as it seems or it didn’t actually turn out the way they thought it would,” he says.
Mr Higgins argues that ESG doesn’t work, but “the world has been promised” in 2022 that people will understand that investing is not that simple.
“If you think about the classic hype cycle, we’re in the pit of despair, but we’re on the leading edge of getting to a more realistic, long-lasting view of what this thing is, what it should look like, how it should feel, how it should work,” he says.
Mr Higgins adds that Zenith sees little evidence that investors should sacrifice performance to invest ethically or sustainably over the long term.
“You can definitely achieve radical differences in the short term.
“You’re going to have very distinct periods of over- and under-performance, you’ve got to accept that and you’ve got to get over it and accept that that’s part of the deal.”
