Asset management redefines sustainability
5 NOV, 2025
Annie Omojola, Research Analyst at MainStreet Partners
In the last twelve months we have analyzed over 1,400 funds to understand how asset managers are concretely addressing ESG and sustainability.
The results show a rapidly maturing market, where traditional strategies based on exclusions remain widespread but future-oriented sustainable themes and data-driven innovation are gaining ground.
From exclusions to opportunities
Negative screening remains the most common approach, adopted by almost one in three funds.
These products exclude companies involved in controversial sectors. The dominance of this strategy is not surprising: it is one of the oldest and most applied ESG practices, providing managers with a clear framework to limit reputational risks and meet the minimum demands of investors.
However, this strategy is more defensive than proactive. Instead of seeking new opportunities or promoting positive change, it focuses on what should not be included in the portfolio. It is effective in reducing certain risks but does not actively pursue sustainability goals nor generates broader impacts.
In stark contrast, the “Sustainable” and “Thematic” approaches, which together represent the second largest share, reflect a more proactive mindset. These funds focus on themes such as biodiversity, circular economy, inclusion and clean energy, often linking to the United Nations Sustainable Development Goals (SDGs). It is interesting to note that funds with a multi-thematic exposure now outnumber those focused on a single SDG, signaling a shift towards diversification and opportunity generation.
Active and passive, two paths towards integration
There is a clear distinction between active and passive strategies.
More than half of ETFs and indexed funds fall into the “Improvement” or “Best-in-Class” categories. This makes sense, as optimization fits well with portfolios that can be oriented towards companies with high ESG scores, low carbon emissions or paths aligned with the Paris Agreement.
Active funds, on the contrary, focus more often on negative screening and sustainable strategies, where qualitative judgment, narrative construction, and the manager's conviction play a stronger role.
For management companies, this gap opens two strategic paths: on one hand, passive funds can expand their thematic offering beyond simple score optimization; on the other, active funds can strengthen internal competencies in sustainability and extend thematic or geographical coverage.
How many funds are truly sustainable? According to our proprietary framework, few.
Only 20% of the funds analyzed meet the sustainability definition of MainStreet Partners.
To qualify, funds must show a clear intention towards sustainability, effective governance, stewardship activities, and concrete results, while at the same time avoiding practices that cause significant damage.
Within this group, most adopt a broad approach to the SDGs or multi-thematic, with a strong focus on environmental and climate issues. However, there are still areas that are little explored, such as digital inclusion, sustainable mobility, and social transition.
Finding sustainability in today's markets
The analysis by asset class tells an interesting story.
The landscape of sustainable funds is dominated by global Large Cap stocks, which reflects liquidity and demand from investors. However, the scarcity of sustainable options in segments such as global government bonds, high-yield credit, and emerging market stocks is structural in nature.
In the high-yield segment, much of the universe is concentrated in sectors such as oil and gas, coal, gambling, and high-leverage finance, often excluded from ESG and sustainable mandates, thus reducing investment opportunities.
Although the issuance of sovereign green bonds remains modest compared to the size of the global bond market, it is, however, steadily growing, which highlights a long-term potential for this asset class.
For emerging market actions (particularly funds focused on individual countries such as India or China), the main challenges relate to transparency, governance, and state ownership. Nevertheless, their central role in the energy transition - from renewables to supply chains for electric vehicles and green infrastructure - makes them an interesting opportunity in the long term. Improvements in transparency and a growing demand for diversification from investors could progressively open these segments.
The way forward
ESG and sustainable investment is entering a new phase.
Exclusions will continue to represent the starting point but differentiation will increasingly depend on innovation - in themes, asset classes, and regions. For managers, the message is clear: sustainability is no longer just risk management but value creation.
The next generation of sustainable funds will be defined not by what it excludes but by what it makes possible.
