A quarter of funds cannot provide a single example of how they integrated environmental, social and governance factors into their decision making, and half of private market funds scored red on stewardship, a new ESG report that analysed 170 funds by 41 asset managers has found.  

A large part of the fund sector has stagnated on ESG matters for the past five years, the report by consultancy XPS Group, published on Monday, suggests. Although the proportion of green-rated funds increased to 43% from 40% last year, 26% - the same proportion as in 2024 – could not provide any examples of integrating ESG into their decision making.   

The US administration’s denial of climate change and litigation in the US around ESG investment have prompted some asset managers to retreat from climate targets and joint initiatives – and this is reflected in the latest ratings.  

“Fund managers' commitments on climate have gone the wrong way,” said XPS chief investment officer Simeon Willis. "We have seen a U-turn, reflecting litigation in the US.”  

The report notes that “despite the temporary cessation of the Net Zero Asset Managers Initiative earlier in 2025, we expect managers to have clear firm-level targets to manage climate change as a systemic issue. We downgraded a number of managers from green to amber because they did not have credible targets around climate change, including managers who had explicitly softened their previous targets.”  

XPS has seen a corresponding impact in terms of the fund-level approach to ESG, with the percentage of funds rated green on integration falling for the first time in years and now at just 50% compared with 58% in 2024.   

This retrograde trend was largely driven by multi-asset, secure income and real assets, the consultancy found, “where we observed consistently poor responses when we asked for examples of analysis embedding ESG risk factors into investment decisions”.  

On diversity and inclusion, the majority (90%) of the fund managers analysed have a policy, yet fewer than two-thirds (61%) have introduced any targets against which progress can be measured.  

When it comes to stewardship, most funds scored poorly on social engagement at 17%, with environmental engagement higher at 42%. However, 47% of diversified private market funds were rated red for stewardship because there was “weak evidence of engagement and ESG oversight” – a fact that might concern pension funds, given their and their members’ increasing exposure to private markets and government pressure to up this further. 

“The common response is, 'We've already invested the assets',” said Willis, with fund managers implying that there is little they can do once the money has been allocated, something XPS does not accept. 

The trend is worrying, as the proportion of red-rated private market funds has increased since last year, from 33%, based on funds’ ability to identify the issue, undertake engagement, set milestones and escalate engagements where needed. 

“This is an ongoing pattern and highlights the difference between public and private markets,” the report argues.