Sustainable investing: Getting back on track
By AXA IM, Head of Sustainability, Core Products & Clients, Jane Wadia and BNP Paribas Asset Management, Global Head of Sustainability, Jane Ambachtsheer
It has been a turbulent period for environmental, social and governance (ESG) portfolios, which endured net outflows early in 2025. However, the second quarter (Q2) enjoyed a strong rebound, with $4.9bn in net inflows globally, driven by European investors who added $8.6bn after redeeming $7.3bn the previous quarter. Despite some outflows in Q3, total sustainable fund assets climbed to $3.7trn, an increase of around 4%, supported by stock market appreciation.[i]
European investors remain firmly committed to sustainability, and climate remains their top priority.
One recent survey shows 58% of UK and European asset managers plan to increase impact allocations in the next year, with none intending to reduce them.[ii]
In Asia Pacific, we have seen continued progress on several sustainability priorities - for example, the region is set for a record year for sustainable bond issuance in 2025. In addition, 80% of asset owners in the region expect assets under management in sustainable funds to grow over the next two years.[iii]
For us three climate-related investment strategies stood out in 2025, which we expect to remain in focus in 2026.
- Green bonds
Green bonds finance projects like renewable energy, green buildings, and low carbon transport, offering similar risk profiles to conventional bonds but with added transparency and impact reporting. The market has grown from €30bn a decade ago to €1.9trn today. It has grown into a global universe, with breadth and depth in terms of sectors and issuers. Although 2025 issuance may be slightly lower than 2024’s record of some €420bn, innovation continues, notably with European green bonds gaining traction. The broader green, social, and sustainability bond market now rivals the euro investment-grade credit sector at €3trn, with green bonds as its cornerstone.[iv] The state of the market should come as little surprise given that today, green bonds are entrenched in the mainstream – and have been for some time – typically offering a comparable yield to conventional bonds. - Decarbonisation
Asset owners are moving from pledges to action, adopting frameworks like the Net Zero Investment Framework and the Task Force on Climate-related Financial Disclosures (TCFD). Decarbonisation strategies focus on seeking opportunities associated with the transition to a low-carbon economy and reducing exposure to carbon emissions and are gaining traction across equities and fixed income. Climate and Paris-Aligned Benchmark exchange-traded funds are also seeing increased interest. - Climate and nature solutions
Investors are allocating capital to solutions that address climate and biodiversity challenges. These include clean energy, sustainable agriculture, resilient infrastructure and water management. The goal is to invest in financially sound and scalable companies delivering measurable environmental outcomes - such as carbon emissions avoided - or restoring ecosystems. Climate change and biodiversity loss are a systemic issue and addressing them demands solutions that match their considerable scale. These environmental strategies not only help manage physical climate risks but also open new investment opportunities in underserved markets.
Looking ahead
Despite policy shifts in the US, Europe continues to lead in sustainable investing, offering a strong pipeline of opportunities with attractive risk-return profiles - and European governments, corporates, and investors are staying the course. For European investors, sustainability is not a trend—it’s a strategic imperative. And with Asia’s growing role in driving the energy transition, we have two clear regions driving this focus.
[i] Source: Morningstar Global Sustainable Fund Flows: Q2 2025 in Review / Global Sustainable Fund Flows: Q3 2025 in Review | Morningstar
[ii] Pensions for Purpose / Nearly all (93%) of UK and European institutional investors "concerned" about sustainability under a Trump presidency – press release | Pensions For Purpose
[iii] Morgan Stanley, July 2025
[iv] All Green Bond / GSS data source: Bloomberg as of 6 October 2025
Dominique Frantzen
Jennifer Luca
Serge Vanbockryck
Arnaud Verwacht