Investors want environmental, social, and governance strategies, but many financial advisors don't offer them to clients. That's the conclusion of two recent reports on ESG.
According to Morgan Stanley's Institute for Sustainable Investing's 2026 "Sustainable Signals: Individual Investors" report: "Our latest survey of 2,250 individual investors across North America, Europe and Asia Pacific finds that 92% are interested in sustainable investing, up four percentage points from 2025." Moreover, nearly two-thirds or 64% of investors say they plan to increase their allocation to sustainable investments over the next year.
Meanwhile, a recent report by Fintrx analyzed 12,895 independent RIAs to see where ESG adoption stands and found 932 are flagged as active ESG investors, a firm-level classification indicating the firm actively considers environmental, social, and governance factors in its investment process. That puts the national rate at just 7.2%.
Having no discrete firmwide ESG classification isn't the same as saying advisors don't offer ESG investment options to clients. But two other studies in recent years, one from the Financial Planning Association and another from Cerulli, indicate a declining interest in ESG among advisors and other institutional investors in part because of fear over the anti-ESG policies of the current political administration and an association of ESG with diversity, equity and inclusion or DEI policies, even though ESG and DEI policies have distinct objectives.
Theoretically, the only thing that should prevent an advisor from offering ESG investment options would be a concern that ESG-oriented mutual funds, exchange traded funds and private accounts would produce subpar returns. Evidence of persistent underperformance of ESG strategies versus category peers or relevant benchmarks would indicate a potential lapse in the advisor's fiduciary duty for putting clients in such strategies.
Yet there is no definitive evidence to prove such is the case. Numerous studies and even meta-studies of those individual studies have drawn inconclusive results in part because ESG can be difficult to define. But in general there has been a slight edge given to ESG strategies long-term from a risk perspective as screening out companies with poor environmental, social and governance records reduces downside headline risks.
The two most popular ESG ETFs, according to Morningstar, are the $17.9 billion iShares ESG Aware MSCI USA (ticker: ESGU) and the $13.2 billion Vanguard ESG U.S. Stock $(ESGV)$.
Both are all-cap funds that are best compared with total market index funds like the $2.3 trillion Vanguard Total Stock Market Index $(VTI)$. Both have largely matched that fund's 19.5% annualized return in the past three years, but lagged behind it slightly in the last five because they have higher weightings in tech stocks, which did poorly in 2022's inflation-driven downturn.
Meanwhile, the best-performing ESG fund in the past five years is the specialized $11.5 billion First Trust Nasdaq Clean Edge Smart Grid Infrastructure Index $(GRID)$, which has trounced more diversified benchmarks.
In other words, there is no good fiduciary reason for advisors to avoid ESG. That's especially evident, given that many advisors continue to invest their clients in actively managed funds, which generally have an abysmal long-term record of beating their benchmarks.
Lewis Braham is a freelance financial writer whose work has appeared in Barron's and numerous other publications. He is the author of The House that Bogle Built: How John Bogle and Vanguard Reinvented the Mutual Fund Industry .
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
July 22, 2026 15:28 ET (19:28 GMT)
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