Greenwashing and performance are now the lowest barriers to ESG investing, FTSE Russell survey finds: what the shift means for sustainable fund positioning

FTSE Russell's annual asset owner survey identifies greenwashing concerns and performance expectations as the lowest barriers to ESG investing among institutional asset owners, a finding that runs counter to the narrative that regulatory scrutiny and return anxiety are still the primary obstacles to sustainable fund adoption. The survey also recorded a jump in support for divestment of high emitters, a strategy that had fallen out of favour with many large allocators who preferred engagement over exit. Together, the two findings suggest a meaningful shift in how institutional capital is positioning itself relative to sustainability risk.

The greenwashing finding is particularly significant given the volume of regulatory attention the topic has attracted across Europe and beyond. SFDR reclassifications, FCA sustainable disclosure rules, and ESMA guidance on fund naming conventions have all put pressure on asset managers to tighten the claims they make about sustainable products. If asset owners now regard greenwashing as a lower rather than higher barrier to investment, it may indicate that the regulatory tightening is working: clearer standards make it easier to distinguish credible strategies from superficial ones.

The revival of divestment sentiment is worth tracking closely. Divestment from high emitting sectors fell out of mainstream institutional favour partly because engagement arguments won the debate inside large pension funds and asset managers, and partly because energy sector returns made exit look costly. A jump in divestment support among asset owners, as recorded by FTSE Russell, could have downstream effects on the cost of capital for carbon intensive industries and on the ESG ratings and index inclusion of companies that fail to credibly reduce emissions.

For ESG managers at listed European companies, the survey data has practical implications for investor relations and climate disclosure strategy. If asset owners are becoming more confident in sustainable investment and more willing to act on emissions exposure through divestment rather than waiting for engagement to produce results, the pressure to demonstrate credible Scope 1, Scope 2, and Scope 3 trajectories in annual reports and CSRD disclosures increases. Companies that cannot show a believable pathway will face a growing population of investors ready to exit rather than wait.

The FTSE Russell findings also contribute to an evolving picture of ESG investor sentiment that differs markedly from the backlash narrative that dominated much of 2024 and early 2025. Returning confidence in sustainable investment, lower perceived barriers, and stronger divestment intent are collectively the profile of a market that is maturing rather than retreating. Asset managers designing product strategy and sustainability consultants advising asset owner clients would do well to treat this survey as an early indicator rather than a lagging one.