Catch-22: green priorities and grey portfolios 

The narrative around Gen Z and sustainable investing regularly paints their union as a natural one. While Gen Z and Millennial interest in sustainable investing is clear, their money does not seem to be following their mouth. 2025 saw huge outflows for ESG investing worldwide; can the younger generations be relied upon to fund the next decade of sustainable investing? 

The data 

Surveys consistently indicate that sustainability matters to young investors. A 2025 Morgan Stanley survey of investors with more than $100,000+ in investable assets found that 99% of Gen Z investors claim to be interested in sustainable investing, alongside 97% of Millennials. Furthermore, 51% of Gen Z and 45% of Millennial candidates said that between 21% and 50% of their current portfolio is invested in sustainable options, in comparison to just 16% of Baby Boomers. 

While the majority of investors do not have the portfolio size of these candidates, the study indicates a tendency within an age group that can be extrapolated to wider society. ESG investing was not an option for Baby Boomers at the start of their careers, and they remain reticent to invest in the sustainable funds now available. Therefore, it is likely that Gen Z and Millennials will lead growth in these markets.

And yet, even among those investors responsible for record-high interest in socially and environmentally conscious investing, money is not consistently flowing into ESG-centred investment routes. In 2025, Morningstar recorded that global sustainable funds saw $84bn in net outflows, following a $38bn inflow in 2024. This stands in strong contrast to the $1.7tn inflow experienced by the global open-end fund and ETF universe. Whilst 2005 was the first recorded year of outflows in Europe and the rest of the world, it marked the third consecutive year thereof for the US.

Although numbers recovered in Q1 and Q2 2026, the fact that money was so quick to move out of sustainable funds when markets became uncertain indicates that values are not the sole consideration of ESG-considerate investors. As Gen Z gains an increasing share of the workforce, and by extension has more disposable income to invest, why are these numbers not rising consistently?   

Why?

Global Data links the decline in ESG focus to a generally challenging market; it is not that ESG principles are being rejected, but that investor priorities have shifted. Part of the answer is simply that young people do not have the luxury of investing in portfolios aligned with their ethical values. Deloitte’s annual Gen Z and Millennial Survey shows that cost of living has been a top concern for five consecutive years. Given widely held doubts regarding the security of financial returns within the ESG sector, and US retail investors expecting ESG to underperform by 1.4-2.1% annualised, it is not surprising that placing money in this sector is a risk not all young investors are willing to take. 

Nevertheless, returning to the Morgan Stanley Sustainable Investors Report, nearly half of the 495 Baby Boomer respondents were unsure what percentage of their portfolio was invested in social or environmental impact funds or companies. In comparison, only 11-12% of, for Millennials and Gen Z were unaware. Thus, whether or not these Gen Z investors are concerned about the sustainability of their portfolios, they are conscious of the impact of their investing. 

Why does this matter?

Gen Z is certainly transforming the investing industry. A study conducted by the World Economic Forum found that 30% of Gen Z, compared to 9% of Gen X and 6% of Baby Boomers, start investing in early adulthood. The question is whether these younger generations are likely to fund the next decade of sustainable investing.  
The signs all point to a strong disposition towards ESG investing. Indeed, despite office aircon’s best attempts to combat Europe’s roaring 35-degree heat this summer, climate change is becoming increasingly difficult to ignore. It is not only individual portfolios that serve to gain by investing in sustainability. Companies could be better poised long-term to deal with things like supply chain shocks or physical climate risks.
Recent geopolitical shifts have shown how volatile the industry can be to invest in. The attitude of the Trump administration towards ESG and the impact of conflict in the Middle East have been just two of those shifts. It must be taken into account that younger generations are not expecting to buy physical assets — joining the property ladder, for example, is widely understood to be unlikely. This perhaps explains why many of the current youth are keen to build investing portfolios so young, yet remain nevertheless unreliable customers within the ESG investing industry: they are betting their future financial stability on the success of their portfolios, arguably more so than any previous generation. 86% of asset owners globally expect sustainable allocations to rise over the next two years. This indicates that professionals are betting that the 2025 downturn was a blip rather than a shift, and that Gen Z will place more of their money towards sustainable investing as wealth transfers down from the Boomer generation.

Clementine Trott is an analyst, Strategic Intelligence at GlobalData