SustainAbility: What is the lesson of 2025?

Most investors should remember 2025 fondly. Equity markets have risen by double digits, fixed income has provided positive returns, while gold has been a notable strong performer too. Overall, a positive year for investors.

At the beginning of 2025, investors believed in US exceptionalism, with equities riding high on the back of the AI roll-out and expectations of pro-business policies from the Trump administration. Multiple events challenged that narrative; first China broke the belief the US was the sole player in AI after releasing a large language model offering similar performance to the US ones. This was a good illustration that China is now a technological leader going head-to-head with the US and in some areas, such as clean energy, outperforming. The second event was the tariff levels proposed by the Trump administration, which were significantly higher than expectations. Combined, these events shook investors’ beliefs and US equities almost entered a bear market (as defined by a 20% decline).

Narratives quickly emerged this was the end of US exceptionalism, yet since Liberation Day lows, the S&P 500 has not only recovered but surpassed its previous high, and outperformed every other market since, driven by renewed appetite towards AI stocks. Meanwhile, Chinese equities which were viewed as uninvestible became one of the best performing markets this year. European markets, including UK equities, also had a good year despite concerns about government finances and the ongoing war in Ukraine. Following the narrative this year would have been a very unprofitable strategy.

Meanwhile, Chinese equities which were viewed as uninvestible became one of the best performing markets this year.

What does it mean for sustainable investors?

The narrative for sustainable investing over the past couple of years has been negative. Investors have adopted a gloomy outlook, especially regarding the US. The Trump administration has voiced concerns about sustainability many times and has pushed a pro-oil agenda.

For us sustainability was never about flashy commitments, lengthy reports and bold targets.  Companies who truly embed sustainability do so because it makes sense not only from a sustainability perspective but also from a financial perspective. Being more energy efficient is less costly; having a best-in-class safety profile helps to attract and retain talent; clear governance structures make management more accountable.

Companies who truly embed sustainability do so because it makes sense not only from a sustainability perspective but also from a financial perspective.

Despite this narrative, when we look at many sustainable companies that we invest in, they have performed well this year. Clean energy stocks, which are generally seen as the most obvious sustainable investments, are having their best year since 2020 with renewables the cheapest way to meet rising AI power consumption. Again, beware of the narrative.

Will 2026 be a good year for sustainable investing?

It is customary at the end of any year to give an outlook and make predictions about markets, but if investors look at the historical accuracies of these predictions, they will rightly question their merit. As such we will abstain from writing one. However, what we can say is that we will maintain our discipline and continue to diligently enact the same approach we have applied for over 20 years. It has served us well. When we look at markets today, there are many exciting sustainable companies which we believe have the potential to reward investors over the long term.

To all our clients and partners, we thank you for your support and wish you a Merry Christmas and a Happy New Year!

For professional investors only.  This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. Reference to any security is for information purposes only and should not be considered a recommendation to buy or sell.

The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. Portfolio characteristics and holdings are subject to change without notice. The views expressed are those of the author at the date of publication unless otherwise indicated, which are subject to change. Forward looking statements are subject to certain risks and uncertainties, Actual outcomes may be materially different from those expressed or implied.