Environmental, Social, and Governance (ESG) investing has moved from the margins to the mainstream over the past decade. Major asset managers now run ESG-labelled funds worth trillions of dollars globally. Regulators in Europe, the UK, and Asia have introduced disclosure requirements. And investors — particularly from younger generations and institutions — increasingly want to understand the non-financial impact of where their money is placed.
For internationally mobile high-net-worth investors, ESG brings specific considerations: which products are available through offshore platforms, how ESG criteria interact with offshore bond wrappers, what the performance evidence actually shows, and how to avoid being misled by greenwashing.
What Does ESG Mean?
ESG is an investment framework that evaluates companies and other assets on three sets of criteria:
Environmental: How a company manages its impact on the natural environment — carbon emissions, energy efficiency, water usage, waste management, biodiversity, and exposure to climate transition risk.
Social: How a company manages relationships with employees, suppliers, customers, and communities — labour standards, diversity, data privacy, supply chain practices, and community impact.
Governance: How a company is run — board structure, executive pay, shareholder rights, auditing standards, anti-corruption policies, and transparency.
ESG is not a single thing. It encompasses a wide range of approaches:
ESG screening (exclusions): Excluding companies or sectors from a portfolio based on ESG criteria. Common exclusions include tobacco, weapons, fossil fuels, gambling, and adult entertainment. This is the oldest and simplest form of ESG investing.
ESG integration: Incorporating ESG factors alongside traditional financial analysis. The idea is that companies with poor ESG practices face greater risks (regulatory, reputational, operational) that are not fully reflected in conventional financial models.
ESG-tilted or "best in class" selection: Investing across all sectors but preferring companies with stronger ESG scores within each sector. This approach avoids the binary exclusion problem and retains sector diversification.
Active engagement: Shareholders using their ownership position to push companies to improve ESG practices — through proxy voting, dialogue with management, and shareholder resolutions.
Impact investing: A distinct but related approach where the explicit intention is to generate measurable positive social or environmental outcomes alongside financial returns. Impact investing is more demanding than ESG screening — it requires evidence that the investment is causing positive change, not just avoiding harm.
The Performance Evidence: More Nuanced Than You Think
The ESG industry has claimed, at times, that ESG investing delivers better returns — the argument being that ESG factors identify better-managed, less risky companies. The evidence is mixed and period-dependent.
2010-2021: A period of extended outperformance for many ESG-labelled equity funds, particularly those with high technology exposure and low energy/commodities exposure. Much of this outperformance coincided with the tech bull market and the multi-year underperformance of energy stocks — rather than reflecting ESG quality per se.
2022: A significant year for ESG underperformance. Rising energy prices following Russia's invasion of Ukraine caused energy stocks to surge — stocks typically excluded from ESG portfolios. Many ESG funds materially underperformed their conventional benchmarks in 2022.
2023-2025: Mixed results, depending on the specific approach and fund. ESG funds with diversified sector exposure performed closer to benchmarks; those with heavy tech tilts benefited from the AI-driven technology rally.
The honest conclusion is that ESG as a factor does not consistently deliver alpha (outperformance). The return you get from an ESG fund depends primarily on its underlying sector and stock exposures, not on the ESG label itself. ESG integration may improve risk management at the company level over the long run, but this is difficult to isolate empirically.
For investors, this means: do not buy an ESG fund expecting it to outperform a conventional fund. Invest in ESG because it aligns with your values or because you genuinely believe ESG risks (climate transition risk, regulatory risk, social licence to operate) are under-priced by markets — and accept the possibility of periods of underperformance.
Evaluating ESG Credentials: What to Look For
Given widespread greenwashing, scrutiny of ESG claims is essential.
MSCI ESG Ratings: MSCI rates companies on a scale from CCC (worst) to AAA (best). The rating reflects how well a company manages material ESG risks relative to peers. MSCI ESG ratings are widely used by fund managers and can be a useful reference, though they measure risk management, not environmental impact per se.
Sustainalytics: Another widely used ESG research provider, offering risk ratings and assessments of companies' ESG management. Sustainalytics is owned by Morningstar, making ESG ratings more accessible through standard investment research platforms.
Fund-level ratings: Morningstar's Sustainability Globe Rating and the EU's Sustainable Finance Disclosure Regulation (SFDR) classification (Article 6, 8, or 9 funds) are useful heuristics. SFDR Article 9 funds have the most demanding sustainability objectives; Article 6 funds integrate ESG minimally or not at all.
Key questions to ask of any ESG fund:
- What specifically is excluded, and why? Are the exclusions meaningful or token?
- What is the fund's net exposure to high-carbon industries?
- Does the fund engage with companies on ESG issues, and does it report on that engagement?
- What is the methodology for ESG scoring — how transparent is it?
- What has the fund's carbon footprint been versus its benchmark?
Greenwashing: The Risk for Investors
Greenwashing — presenting an investment as more sustainable than it actually is — is widespread. Regulators in the EU (through SFDR), the UK (FCA's Sustainability Disclosure Requirements, from 2024), and the US have all moved to address it, but enforcement is still developing.
Common greenwashing patterns include:
- Funds with "sustainable" or "ESG" in the name that only exclude a handful of sectors
- Funds marketed as "green" but with significant holdings in oil & gas through indirect exposure (e.g., banks that finance fossil fuel extraction)
- Impact claims that lack third-party verification or measurable outcomes
- Using carbon offsets to claim "net zero" status without material reduction in actual emissions
The antidote is specificity: look at the actual holdings, the actual exclusion list, the actual engagement record, and the actual carbon footprint data — not just the marketing materials.
ESG in Offshore Bond Wrappers and International Platforms
For internationally mobile investors using offshore investment bonds or international platforms, ESG fund availability has expanded significantly. Most major offshore platforms now offer a range of UCITS-compliant ESG funds across equity, fixed income, and multi-asset categories.
Within an offshore investment bond, ESG funds can be held in the same way as conventional funds, with the same income tax deferral advantages. The choice of ESG vs. conventional fund does not affect the tax treatment of the bond wrapper itself.
International investors should be aware that ESG fund availability varies significantly by jurisdiction. SFDR-labelled EU funds may not be marketed in all non-EU countries. UK-authorised funds may have restrictions on marketing to non-UK residents. Working with an adviser who can access a broad fund platform is important for building an internationally accessible ESG portfolio.
Islamic Finance and ESG: Areas of Overlap
Islamic finance and ESG investing share some common ground. Sharia-compliant investing prohibits investment in alcohol, tobacco, weapons, conventional banking (interest-based), gambling, and adult entertainment — overlapping with common ESG exclusions. Both frameworks also emphasise ethical business conduct and social responsibility.
However, Islamic finance has distinct criteria — notably the prohibition on interest (riba) — that ESG frameworks do not address. And ESG encompasses environmental factors (climate, biodiversity) that Islamic finance criteria traditionally do not prioritise directly. The overlap exists but the two frameworks are not synonymous, and fund labelling should make the specific criteria clear.
How Global Investments Can Help
ESG is a genuinely complex area where marketing often outpaces substance. Our advisers can help you cut through the noise: identify what your values priorities actually are, select funds with genuine ESG credentials that match those priorities, and build a portfolio that does not sacrifice returns unnecessarily. We work with clients holding wealth through offshore bonds, international platforms, and direct investment accounts, and can source ESG-aligned solutions across all of these structures. Get in touch to discuss how sustainable investing fits your broader financial plan.
This article is for general information only and does not constitute a recommendation to invest in any specific fund or product. Investments can fall as well as rise in value. Past performance is not a guide to future results. ESG criteria and fund classifications may change.
This article is for general information only and does not constitute financial, legal or tax advice. Rules, prices and regulations change; verify current requirements with a qualified adviser before acting.