Sustainable investing has genuine problems: the supply chains are murky, the data is inconsistent and some of the largest institutions have walked away from their commitments. And yes, over the past few years, ESG funds have underperformed their conventional peers in periods when defence and energy led the market.
But the conclusion some draw from this, as my colleague Matteo Anelli did last week – that individual investors might as well not bother – conflates the difficulty of doing something with the pointlessness of doing it.
Matteo's issues with ESG run roughly as follows. There's an intractable verification problem: exclude oil and gas and you find yourself holding solar panels with Xinjiang supply chains or wind turbines tied to contested cobalt networks. Returns have suffered: the average ethical fund returned 10.3% in 2025 against 12.2% for conventional peers and defence stocks, which ESG portfolios can't touch, were among the year's strongest performers. And if BlackRock, JPMorgan and others have retreated from their own ESG commitments, what hope does an individual investor's ISA have?
His conclusion is that single investors cannot act as the conscience of markets. While I agree with him about most of the problems facing sustainable investors, I come to a very different conclusion that rests on two concepts investors already understand: total return, which can mean more than most assume, and compounding, which applies here to decisions as much as to capital.
Of course, ESG funds underperform in some periods. They also outperform in others. This is true of every investment factor ever identified. Value investing underperforms for years at a stretch but nobody concludes from a bad year for value that analysing company valuations is a waste of time.
What's more, ESG is the only investment factor that also delivers something no other factor can: alignment between your capital and your values. Whether that alignment matters to you is a personal question but for investors to whom it does matter, it becomes part of their total return.
Consider how conventional finance already treats this. Investors routinely accept lower expected returns in exchange for lower volatility: that trade-off is not seen as irrational, it is the entire basis of portfolio construction. A risk-adjusted return is simply a return that accounts for something the investor cares about beyond the raw number.
Values-alignment works the same way. If holding a fund that reflects your principles reduces the psychological cost of staying invested through turbulent periods, it directly improves one of the most measurable drivers of long-run returns: the investor's own behaviour. People sell at the bottom less often when they believe in what they own.
But the case for individual ESG investing does not rest on returns alone. It is about what happens when a person takes one small, manageable step and then keeps taking it.
Behavioural research suggests small actions that are easy to repeat do get repeated. Over time, repeated behaviour becomes habit. Habit becomes identity. Once "I invest with my values in mind" is part of how a person thinks about themselves, the cognitive effort involved falls sharply. Decisions that once required research and deliberation start to feel obvious.
The reverse is equally real. Once ethical behaviour is embedded in someone's identity, actions that contradict it create discomfort, so avoiding funds with problematic holdings or poor governance stops being a chore and becomes a reflex. The compounding is psychological as much as financial.
Think also about the compounding effect when enough people make the same imperfect choice.
Companies produce the goods and services that consumers demand. When enough consumers shift away from a product, demand falls. Companies respond to this falling demand: they make less of what is not selling, or they improve what they make to win customers back.
I agree that regulation will drive the largest structural changes and technology will enable them, having far more impact than any one individual investor. But individual action and systemic change reinforce each other. Consumer behaviour shifts make regulation politically viable and create the commercial pressure that accelerates it. Technology scales what consumers have already demonstrated they want.
The individual is not powerless: the aggregation of imperfect individual choices is how consumer markets have always shifted, from lead in petrol to plastic straws to the mainstreaming of electric vehicles.
No single vote decides an election. No single consumer drove the shift away from single-use plastic. Change at scale is always the aggregate of actions that looked individually insufficient. The assumption that unless you can act perfectly and at civilisation-defining scale it is not worth acting at all would, applied consistently, bring all human agency to a halt.
So the question is not whether your ISA will resolve the climate crisis. It will not. The question is whether a world in which millions of investors make slightly more thoughtful decisions with their capital is better than one in which they do not.
I think it is.
Gary Jackson is head of editorial at FE fundinfo. The views expressed above should not be taken as investment advice.