Why Sustainable Investing Cannot Be Everything at Once

A review of the lecture “Value, Moral, and Impact: Sustainable Investing Goals, Actions and Outcomes” Professor Ayako Yasuda 4th December 2025.

Sustainable investing promises much—but its aims are far from unified. In the final NBS-PRI-ECGI Public Lecture of 2025, Professor Ayako Yasuda posed a pressing question: what are investors actually trying to achieve—financial value, moral alignment, or real-world impact? And can a single category of “sustainable funds” deliver all three? The lecture framed this question as a fundamental tension in the modern sustainable finance ecosystem: products designed to avoid harm, generate societal benefits, and improve portfolio performance often sit uncomfortably together under one label.

Three Goals Under One Label

To illustrate this, Prof Yasuda introduced three investor archetypes—one seeking a clean conscience, one seeking measurable improvements such as access to clean water, and one seeking protection from ESG-related business risks. These motivations—moral values, impact, and financial materiality—frequently diverge in practice. A financially minded investor might avoid high-emission firms due to risk; a moral investor might exclude them categorically; an impact-oriented investor might actively hold those same firms to help them transition. Expecting a single fund to satisfy all three goals creates confusion for households and fund managers alike.

What Impact Really Means

Much of this confusion stems from an imprecise use of the word “impact.” In the lecture, impact investing referred to strategies that intentionally generate positive externalities—clean air, water access, lower emissions—benefits that markets do not fully price. These are classic public goods: valuable to society, but often unprofitable to produce without intervention.. Only a small share of sustainable funds attempts to produce such outcomes. Impact strategies therefore pursue a dual objective: financial return and real-world outcome, typically delivered through active engagement with firms to shift behaviour.

This approach differs fundamentally from moral or exclusion-based strategies, which are designed to keep certain firms out of a portfolio rather than to change how those firms behave. Excluding “sin” or high-emission companies may feel ethically aligned with one’s values, but it rarely shifts real-world outcomes unless almost the entire market acts in unison. One estimate illustrates the scale of the challenge: moral investors would need to control around 80% of all available capital to raise a firm’s cost of capital by just one percentage point. Because such coordination is highly unlikely, engagement—working directly with firms to alter their practices—tends to have a much greater chance of producing real change. From this consequentialist perspective, continuing to hold a brown firm may be the more ethical choice if doing so leads to lower emissions than the counterfactual in which the investor divests. Moral investors may find this choice difficult to reconcile with their (deontological) conscience. Furthermore, they may be overoptimistic about the impact of exclusion as an investment strategy. This helps explain why many retail investors assume they are making an impact when they are primarily cleaning their own portfolios.

When Investors Accept Lower Returns

Evidence from impact venture capital funds shows that some investors are willing to trade off return for impact. Across a global sample, the estimated willingness to pay corresponds to a 2.5–3.7% reduction in IRR for impact funds relative to conventional VC. The pattern varies significantly: European investors, PRI signatories, development agencies, mission-driven organizations, and public pensions show strong preferences, while U.S. fiduciary-bound investors exhibit lower willingness, reflecting legal constraints. Investors also pay more for categories with clearer public-good content—environmental outcomes, poverty reduction, minority or women-focused strategies. Where impact is valued, capital flows accordingly, though always within the bounds set by institutional incentives and the law.

What Sustainable Funds Actually Do

Yasuda’s machine-learning analysis of U.S. mutual fund prospectuses (2014–2023) helps reveal how investor motivations translate into fund behavior. Of 1,523 sustainable funds managing $1.7 trillion, 88% primarily pursue financial goals, 10% moral goals, and only 2% target real-world impact. The behavioural differences are substantial. Impact funds hold browner firms, vote more assertively, and are associated with measurable reductions in portfolio companies’ Scope 1 and 2 emissions within a year of investment. 

“I see this as evidence that impact funds walk the talk.” – Ayako Yasuda 

The gap between perception and reality also clarifies the ESG backlash in parts of the United States. In states such as Texas, claims that ESG funds “boycott” fossil fuels are largely unfounded; the restricted funds were only slightly underweight energy, mostly for risk-management reasons. Meanwhile, the segment that actively attempts to change corporate behaviour represents only a tiny fraction of the market. Both pro-ESG and anti-ESG narratives tend to overestimate how many funds are truly pursuing impact.

The Bottleneck for Scaling Real Impact

The moderated discussion, led by Asha Mehta, brought a practitioner’s perspective. Demand for impact remains robust across retail and institutional investors, but preferences remain heterogeneous. Impact investing has evolved from earlier forms of sustainable investing, including moral “socially responsible investing” and value-aligned “ESG investing”.  Both of these strategies are readily implemented by the emergence of good data and sophisticated quantitative tools.

With respect to impact, one challenge is measurement. 

Standardisation alone is not the sole solution, as impact strategies themselves can be heterogeneous, targeting varying objectives and utilizing varying theories of change. 

Policy development may help grow the impact asset class. More segmented competition—where financial, moral, and impact strategies operate in clearly defined categories—could give investors a clearer sense of what they are buying. The spirit of Europe’s SFDR framework was highlighted as a promising step toward such differentiation, even if refinements are needed to distinguish more sharply between moral and impact-oriented approaches. Clear, credible designations could help genuine impact funds scale.

Sustainable investing’s future depends on distinguishing what is ethical, what is impactful, and what is financially prudent. These goals do not always align, and pretending they do risks misleading investors and slowing real progress.

Impact investing is small but demonstrably effective. Moral investing is popular but rarely transformative. Financial ESG is dominant but primarily about risk and return.

A more transparent ecosystem—one that matches investors to the outcomes they seek—may ultimately be the most impactful innovation of all.

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This lecture is part of the NBS-PRI-ECGI Public Lecture Series, a global initiative on sustainable business. Nanyang Business School (NBS), in collaboration with the Principles for Responsible Investment (PRI) and the European Corporate Governance Institute (ECGI), launched this series to foster knowledge exchange between academics, practitioners, and policymakers. As part of this initiative, leading academics present cutting-edge research on sustainability topics, while industry experts moderate discussions, providing real-world insights and facilitating dialogue between research and practice.