“Sustainable investing is not dead, but it is changing”, new private market fundraising data show

The early 2000s were a golden age for net zero commitments. Businesses, investors and governments lined up to align their operations with the goals of the Paris agreement. Each year between 2000 and 2022, some 400 institutional investors signed up to the Principles for Responsible Investment (PRI). Among these 400, were some of the world’s largest asset managers.

Then, came the backlash. At the heart of it all were Republican states in the US, led by Texas Attorney General Ken Paxton. Texas and 10 other states filed lawsuits against managers allegedly steering fossil fuel companies towards emissions reduction. Among their targets were the Big Three – BlackRock, State Street and Vanguard.

Exits from the Net Zero Asset Manager Alliance (NZAM) followed, and an urgent query emerged: will managers abandon climate commitments under Republican duress?

According to a new report by PitchBook, a Morningstar company, the answer is no.

Are managers abandoning climate?

The effects of the backlash are clear – momentum is slowing. According to the report, new GP signatory count for the PRI started rising in 2019 and reached a high of over 120 in Q2 2021. Then, the data shows a decline culminating in less than 100 sign-ups in 2024.

Partly, this reflects saturation – most of those who wanted to sign up probably did so by late 2024. Yet, in the face of a significant slowdown, political pressures have left a tangible mark on capital allocation strategies. 

Citing falling PRI sign-ups, the report states: “It is also impossible to deny that in the aggregate, sentiment toward the term ESG has become distinctly more negative over the past few years, and in turn this has influenced investor behaviour”.

The report, however, advises against pessimism in interpreting this negativity. Pitchbook’s 2024 Annual Sustainable Investment Survey found that 64% of respondents were still incorporating ESG factors in their investment decisions.

The nature of that incorporation is undergoing change. According to the report, managers are changing the way they communicate their climate offerings to clients – phrases such as ‘sustainability’ or ‘responsible investing’ are now more popular than ‘ESG’.

Simultaneously, managers are embracing granular materiality in their branding – in the hope of avoiding scrutiny and controversy.

“A slowdown in adoption and a reduction in overt branding around ESG should not be mistaken for industry-wide abandonment of it”, the report highlights.

Climate offerings

If it is true that managers are rebranding not abandoning their climate talk – evidence should show a range of financial products on offer for asset owners with a climate mandate.

Citing fund raising data, the report makes the case that managers are expanding their climate related offerings. For instance, over the past three years, specialist infrastructure funds – which invest in transition assets - raised over $100 bn. Some 166 private equity funds similarly raised over $107 bn in commitments for climate solutions.

Allocator pressure, in other words, has acted as an anti-dote to political pressure.

While allocations to these funds have not faltered as Paxton’s colleagues might have hoped they would – they now face serious headwinds. Projects that these funds finance are vulnerable to policy change, particularly in asset classes such as infrastructure.

PitchBook’s claim is that it will come down to asset owners’ conviction in a manager’s arguments over the economics of their offering.

“Their arguments are supported by the fact that conventional energy is finite and the most accessible fossil fuel reserves have been depleted, forcing extractors to expend more capital in production, meaning renewable and low-carbon energy could become a less expensive alternative in the future”, the report concludes.

The message from PitchBook’s report is one asset owners might find comfort in: the pressure has undoubtedly slowed the momentum behind asset managers’ net zero commitments, but it has yet to hurt the popularity of its reasoning.