- 338 ESG funds analysed across 1, 3, and 5-year periods, with each rated from 1 to 5 stars based on their performance relative to sector peers.
- Only 5.4% of ESG themed funds achieved a 4 or 5-star rating, highlighting the limited number of strategies that consistently outperform.
- Over 74% of ESG funds consistently underperformed their sector averages.
- Non ESG themed funds were more likely to deliver stronger performance, with 16.3% receiving a 4 or 5-star rating, nearly triple that of ESG funds.
- Stricter regulation and improved corporate reporting mean many top-performing non-ESG funds now include companies with strong ESG credentials.
ESG (Environmental, Social and Governance) investing is now a common feature across the investment market. ESG labelled funds are available in all major sectors, giving investors a wide range of options to align their portfolios with sustainability goals.
However, recent developments have raised new questions. Bloomberg initially projected that ESG assets would reach $50 trillion by 2025, but this estimate has since been revised down to $40 trillion by 2030. While ESG remains a significant area of focus, the revised forecast may reflect a slowdown in momentum and a shift in investor priorities - from ESG labelling towards stronger performance outcomes.
To explore this, we analysed the performance of 338 ESG and ethically themed funds available to UK investors. Each was reviewed over 1, 3, and 5-year periods and compared to the average returns of other funds in their sector. Funds were then rated from 1 to 5 stars based on their consistency and relative performance.
This article highlights 10 ESG-labelled funds that delivered strong returns while maintaining defined sustainability criteria. It also looks at why many non-ESG-labelled funds may offer better performance potential, while still providing meaningful ESG exposure due to tighter regulations and higher corporate reporting standards.
ESG Funds Performance
We analysed the performance of 338 ethical and ESG-labelled funds across multiple Investment Association sectors, reviewing returns over 1, 3, and 5-year periods. The aim was to assess how these funds have performed relative to their sector peers - irrespective of their specific ESG methodologies or screening criteria.
Just 18 funds (5.4%) achieved a top-tier performance rating of 4 or 5 stars, indicating a strong and consistent track record of outperformance. Within this group, only 4 funds earned the highest five-star rating, while 14 achieved four stars based on their ability to deliver above-average returns over multiple timeframes.
In contrast, the majority of ESG themed funds underperformed. 117 were rated two stars, and 135 received the lowest one-star rating. In total, 74.5% of the ESG funds analysed underperformed relative to their sector averages.
For context, we also evaluated the performance of 3,637 non ESG themed funds across the same Investment Association sectors using the same criteria. This comparison highlights how ESG themed funds have fared against the wider fund universe and provides further insight into where consistent outperformance is most commonly found.
How Yodelar Rates Fund Performance
The analysis highlights a clear trend: ESG-themed funds are statistically more likely to underperform than non-ESG funds. While a growing number of ESG-labelled funds are now available, only a small proportion have delivered consistent outperformance relative to their sector peers. Of the 338 ESG funds reviewed, just 5.4% achieved a 4 or 5-star rating - compared to 16.3% of the 3,637 non-ESG funds analysed.
However, this does not mean ESG-minded investors must compromise on performance. Regulatory changes across many industries have driven widespread improvements in environmental, social, and governance standards. As a result, a growing number of high-quality funds now incorporate ESG characteristics - even when their primary objective is risk-efficient growth rather than meeting a formal ESG classification.
This is reflected in the composition of many of today’s best-performing portfolios, which often include funds with strong ESG credentials despite not being explicitly marketed as ethical or sustainable. For investors who want to achieve strong performance while maintaining ESG alignment, it is increasingly possible to achieve both - without limiting fund selection to ESG labelled products.
10 Best Performing Ethical & ESG Funds
While overall performance among ESG labelled funds is mixed, a small number have demonstrated the ability to consistently outperform their sector peers. These funds combine credible ESG characteristics with strong, repeatable returns - proving that ethical alignment and financial performance are not mutually exclusive.
From the 338 ESG funds reviewed, we have identified 10 that have delivered standout performance across 1, 3, and 5-year periods. Each has earned a 4 or 5-star rating based on its ability to consistently exceed sector benchmarks, while maintaining a defined ESG framework within its investment process.
10 Best Performing ESG Funds
While many ESG-labelled funds have struggled to keep pace with sector averages, a small group have consistently delivered strong, risk-adjusted returns. These funds stand out not only for their performance across multiple timeframes, but also for maintaining clearly defined ethical or sustainability-focused mandates.
From the 338 ESG and ethically themed funds assessed, we identified 10 that achieved a 4 or 5-star rating based on their relative performance over one, three, and five years. Each has demonstrated resilience across varying market conditions, while incorporating environmental, social, or governance considerations as part of their investment approach.
These funds highlight that it is possible to achieve both competitive returns and ESG alignment - provided fund selection is disciplined and data-driven.
Funds are not featured in any particular order.
1. Invesco Global Active ESG Equity UCITS ETF
This actively managed fund invests in a broad range of developed market companies that meet defined environmental, social, and governance (ESG) criteria. It uses a systematic approach to identify stocks based on value, quality, and momentum factors.
With approximately £902 million in assets under management, the fund has delivered stronger returns than the IA Global sector average across multiple timeframes. As shown in the performance table earlier in this article, it returned 2.24% over one year, 32.09% over three years, and 98.28% over five years - compared to sector averages of -0.11%, 15.19%, and 60.78%, respectively.
The portfolio is diversified across sectors including technology, financials, and industrials, with major holdings such as NVIDIA and Alphabet contributing to performance. It is primarily exposed to the United States, with additional investments in Japan, France, and other developed markets.
The fund also incorporates climate objectives, aiming to maintain a carbon intensity at least 50% lower than its benchmark, alongside an annual emissions reduction target of 7%.
2. iShares MSCI EMU ESG Enhanced CTB UCITS ETF
Launched in 2019, the iShares MSCI EMU ESG Enhanced CTB UCITS ETF is a passively managed fund that provides exposure to large and mid-cap companies across developed markets within the European Economic and Monetary Union (EMU). It currently manages approximately €3.48 billion in assets.
The fund tracks the MSCI EMU ESG Enhanced Focus Climate Transition Benchmark (CTB) Index. This index applies exclusions for companies involved in controversial industries, including fossil fuels, tobacco, and armaments, and removes firms with low ESG scores. The remaining constituents are weighted to favour those with stronger ESG credentials and lower carbon intensity.
As shown in the performance table earlier in this article, the fund delivered returns of 8.37% over one year, 40.10% over three years, and 89.35% over five years. These results compare favourably with the IA Europe ex UK sector averages of 3.6%, 26.04%, and 72.75% for the same periods.
The fund’s portfolio is concentrated in Eurozone equities, which account for approximately 95% of holdings. Sector allocation is weighted towards financials, industrials, and technology - areas that have supported recent performance and which form a significant part of the region’s equity markets.
With an ongoing charge of 0.12%, the fund offers a low-cost way to access a broad range of European companies that meet defined ESG and climate criteria. The use of a climate transition benchmark aligns the strategy with evolving regulatory and investor focus on carbon reduction and corporate sustainability practices.
3. iShares UK Equity ESG Screened & Optimised Index Fund
The iShares UK Equity ESG Screened & Optimised Index Fund provides passive exposure to a portfolio of UK equities with defined ESG exclusions. It tracks the Morningstar UK ESG Enhanced Index, which systematically removes companies involved in sectors such as fossil fuels, tobacco, gambling, armaments, and adult entertainment. The remaining constituents are re-weighted using an optimisation process that aims to maintain the overall risk-return profile of the broader UK equity market while enhancing ESG alignment.
Launched in 2022, the fund has grown to manage approximately £2.72 billion in assets. As shown in the performance table earlier in this article, it returned 7.63% over the past year, compared to a sector average of 4.25%. Over three years, it delivered a cumulative return of 25.84%, ahead of the IA UK All Companies sector average of 13.8% for the same period.
The portfolio includes exposure to several of the UK’s largest listed companies, such as AstraZeneca, HSBC, Shell, Unilever, and RELX. These firms are well-established within their respective sectors and contribute both financial stability and high ESG scores within the index’s screening criteria.
With an ongoing charge of 0.05%, the fund represents a low-cost approach to accessing ESG-aligned UK equities. Its design reflects a broader trend of incorporating sustainability factors into core index strategies, without significant deviation from conventional market exposures.
4. JPM Europe (ex-UK) ESG Equity
The JPM Europe (ex-UK) ESG Equity fund is an actively managed strategy that seeks long-term capital growth by investing in European companies (excluding the UK) with positive or improving environmental, social, and governance (ESG) characteristics. At least 80% of the portfolio is allocated to businesses identified as having strong governance or a commitment to managing ESG risks effectively.
The fund manages approximately £164 million in assets and has outperformed its IA Europe ex UK sector peers across multiple timeframes. As shown in the performance table earlier in this article, it returned 6.91% over the past year, compared to the sector average of 3.6%. Its three-year return was 37.18%, and its five-year return was 89.94%, both exceeding the respective sector averages of 26.04% and 72.75%.
Sector allocations have included financials, industrials, and healthcare - areas that have benefited from stabilising macroeconomic conditions across Europe. Recent performance has also been supported by reduced inflationary pressure and ongoing fiscal initiatives aimed at accelerating energy transition and infrastructure development.
The fund’s positioning reflects broader structural trends, including rising ESG regulation within the EU, improving corporate earnings, and increased investor demand for sustainable investment options. These factors have contributed to a favourable environment for strategies targeting both financial returns and ESG integration.
5. L&G Future World ESG Tilted & Optimised Developed Index Fund
Launched in April 2019, the Legal & General Future World ESG Tilted & Optimised Developed Index Fund aims to track the Solactive L&G Enhanced ESG Developed Markets Index on a net total return basis. It allocates at least 90% of its assets to companies within the benchmark, either directly or via depositary receipts, providing broad exposure to developed equity markets.
The fund currently manages approximately £2.56 billion in assets. As shown in the performance table earlier in this article, it returned 3.91% over one year, compared to the IA Global sector average of -0.11%. Its three-year return was 26.82%, and its five-year return reached 80.57%, both well ahead of the sector averages of 15.19% and 60.78%, respectively.
The portfolio is concentrated in developed markets, with a notable overweight to the United States (approximately 70%), alongside allocations to Japan, the UK, and Canada. Sector exposure is tilted towards technology - accounting for 28.5% of holdings - including companies such as Apple, Microsoft, and NVIDIA, which have played a significant role in driving recent performance.
The fund incorporates a Climate Impact Pledge, which excludes companies failing to meet certain climate-related standards. This mechanism introduces an additional ESG screen to a low-cost passive structure, aligning the strategy with broader market efforts to reduce carbon intensity and enhance climate-related transparency.
6. Xtrackers DAX ESG Screened UCITS ETF 1D
The Xtrackers DAX ESG Screened UCITS ETF 1D tracks the DAX® ESG Screened Index, which comprises large-cap German companies listed in euros on the Frankfurt Stock Exchange. The index applies a range of ESG exclusions, removing companies involved in tobacco, armaments, thermal coal, or those assessed as breaching recognised international standards such as the UN Global Compact.
The fund adopts a full physical replication approach, investing directly in all constituents of the index. To mitigate concentration risk, a 10% cap is applied to any single holding, supporting diversification within the portfolio.
As shown in the performance table earlier in this article, the fund has delivered returns of 22.00%, 55.07%, and 99.00% over 1, 3, and 5 years, respectively. These results compare with IA Specialist sector averages of 3.51%, 12.75%, and 42.22%, placing the fund among the top performers in its category.
The portfolio’s performance has been supported by exposure to Germany’s industrial and consumer sectors, as well as financials. Market recovery following the COVID-19 pandemic and broader investor interest in ESG-screened strategies have also contributed to inflows and asset growth. As of the latest data, the fund manages approximately €468 million in assets.
With an ongoing charge of 0.09%, the fund offers a low-cost means of accessing German equities that meet specified ESG screening criteria. Its structure and strategy reflect an emphasis on corporate governance standards and environmental exclusions within a defined national equity market.
7. Brown Advisory Global Leaders Sustainable Fund
The Brown Advisory Global Leaders Sustainable Fund is an actively managed global equity strategy focused on long-term capital growth. It typically holds a concentrated portfolio of 30 to 40 companies that exhibit strong competitive positioning and the ability to deliver sustained returns on invested capital. The fund integrates ESG considerations within its investment process and is classified under Article 8 of the EU Sustainable Finance Disclosure Regulation (SFDR).
With assets under management of approximately £579 million, the fund has outperformed its IA Global sector peers over multiple periods. As outlined in the performance table earlier in this article, it returned 3.68% over one year, compared to the sector average of -0.11%. Over three and five years, it achieved returns of 26.59% and 76.75%, relative to sector averages of 15.19% and 60.78%.
The fund employs a bottom-up, research-led investment approach and maintains a low portfolio turnover. Sector allocations are weighted towards financials, technology, and industrials, with key holdings including Microsoft, Deutsche Börse, London Stock Exchange Group, Alphabet, Unilever, and Visa. The top ten positions account for over 44% of the fund’s assets.
Its geographic allocation spans the US, Eurozone, UK, and selected emerging markets, providing diversification and reducing reliance on any single region. The combination of a disciplined investment approach and integration of ESG analysis defines the fund’s positioning within the global equity space.
8. GAM Sustainable Emerging Equity Fund
Launched in November 2021, the GAM Sustainable Emerging Equity Fund aims to deliver long-term capital growth by investing in companies based in, or deriving the majority of their revenues from, emerging markets. The fund focuses on identifying businesses with strong ESG profiles alongside sound financial fundamentals.
As detailed in the performance table earlier in this article, the fund returned 6.79% over the past year, compared to the IA Global Emerging Markets sector average of 0.41%. Its three-year return of 37.24% compares with a sector average of -5.34%, ranking it first out of 156 funds in its category. Its five-year return of 63.30% also exceeded the sector average of 33.16%.
Performance has been supported by a combination of favourable economic conditions across emerging markets and a selective investment approach. Contributing factors include increased capital flows to developing economies, rising commodity prices, and relatively accommodative interest rate environments in developed markets.
The portfolio is diversified across several industries including financial services, technology, consumer cyclical, and communications. Key holdings include Taiwan Semiconductor, Reliance Industries, Naspers, and Meituan - companies with significant market presence in their respective regions.
The fund’s strategy combines regional growth exposure with a focus on ESG integration, positioning it within a segment of the market where both financial and sustainability factors are increasingly scrutinised.
9. Schroder Global Sustainable Value Equity I Fund
The Schroder Global Sustainable Value Equity I Fund is an actively managed global equity strategy that seeks to deliver capital growth above the MSCI World (Net Total Return) Index over a three to five-year period. It focuses on companies with traditional value characteristics - such as reliable earnings, dividend payments, and steady cash flows - while integrating sustainability considerations. At least 70% of the portfolio is allocated to assets classified by the manager as sustainable.
The fund currently manages approximately £1.03 billion in assets. As shown in the performance table earlier in this article, it returned 4.54% over one year, 17.15% over three years, and 78.79% over five years. These returns compare favourably with the IA Global sector averages of 0.11%, 15.19%, and 60.78% over the same periods.
Holdings are selected through a value-oriented approach that includes an assessment of ESG credentials. The portfolio typically includes 30 to 70 stocks, with current holdings such as Bristol-Myers Squibb, BT Group, and Panasonic among those contributing to long-term performance.
The fund combines a valuation-driven investment process with ESG integration, offering exposure to companies that meet both financial quality and sustainability criteria within a global equity framework.
10. Redwheel UK Climate Engagement Fund
The Redwheel UK Climate Engagement Fund is an actively managed UK equity strategy that focuses on companies addressing climate-related risks and opportunities. The fund seeks to achieve a combination of income and capital growth by investing primarily in UK-listed firms, alongside selective exposure to other developed markets for diversification.
A key feature of the fund is its active ownership approach, which involves engaging directly with portfolio companies to influence environmental practices and encourage progress towards climate targets. The investment strategy focuses on sectors considered central to the energy transition, including financial services, energy, consumer cyclicals, and basic materials.
As shown in the performance table earlier in this article, the fund returned 12.60% over one year, compared to the IA UK All Companies sector average of 4.25%. Over three years, it delivered a cumulative return of 34.33% versus a sector average of 13.08%, and over five years it returned 97.03%, compared to 54.70% for the sector.
With a portfolio concentrated in large-cap UK equities, the fund’s recent performance has reflected both sector positioning and the impact of its active engagement strategy. It currently sits among the top-performing funds in its sector based on multi-year risk-adjusted returns and relative outperformance.
Conclusion: ESG Exposure Without the Label
This analysis shows that while a small number of ESG-labelled funds have delivered strong performance across multiple timeframes, the majority have lagged behind their sector peers. However, ESG integration is no longer limited to explicitly labelled funds.
Tighter regulation, enhanced corporate disclosures, and improved governance standards have resulted in many non-ESG-labelled funds holding companies with robust ESG practices. As a result, investors can gain meaningful ESG exposure without needing to rely solely on products marketed as ESG-focused.
For those seeking strong risk-adjusted returns with some alignment to sustainability principles, this broader trend suggests that ESG considerations are increasingly embedded across the fund universe - whether or not they appear in a fund’s title.
The Value of Independent Advice and Structured Planning
With thousands of funds in the market and a wide divergence in performance, effective fund selection is crucial. As this analysis demonstrates, many ESG-labelled funds have underperformed their sector averages - while some of the most consistently strong performers offer ESG exposure without carrying an explicit ESG label.
This underscores the importance of quality, independent financial advice. Rather than relying on fund branding or broad investment themes, an experienced adviser will assess fund performance within sector context, identify persistently weaker options, and build portfolios using funds that have delivered competitive results relative to their peers and aligned with a client’s risk profile.
Structured planning is equally important. A robust investment strategy considers not only fund selection, but also the investor’s goals, time horizons, and tax position. It connects each investment decision to a broader financial framework—ensuring that portfolios are constructed with long-term efficiency, diversification, and resilience in mind.
For investors unsure whether their existing portfolio is performing as it should, an independent review can provide clarity. By benchmarking results, identifying areas for improvement, and ensuring alignment with individual objectives, advisers can help investors make better-informed decisions in a complex and evolving market environment.
