A joint 2025 study by LSFI, ALFI and PwC on public market sustainable funds found that Luxembourg-based equity and multi-asset funds recorded outflows of €76.2bn and €17.7bn, respectively, between 2023 and 2025. In an interview on 10 April 2026, Etienne de Callataÿ, economist at Orcadia, confirmed that investor sentiment has shifted in 2024 and 2025. This is reflected in the weaker performance of the MSCI SRI (Socially Responsible Investment) compared to the MSCI Europe (chart 1).
Chart 1: Cumulative performance of the MSCI Europe (black) vs. MSCI SRI Source: Orcadia
De Callataÿ noted that what was once considered a “strong investment” is now viewed in the opposite way. This has led some investors to exit responsible investing, expecting it to face further pressure in 2026 and beyond. He added: "Some with short memories or a belief that the environment has changed now see responsible investing as something that was driven by political support or trends in Europe and elsewhere.”
A valuation premium for responsible companies is logically justified by academic research.
However, de Callataÿ stressed that reliable historical data since 2007 indicate that, over the long term, responsible indices performed similarly to traditional benchmarks in both the United States and Europe.
ESG valuations reset, not reversed
Beyond performance trends, valuation dynamics provide further insight into this shift in sentiment. An analysis of price-to-earnings (P/E) ratios shows that between 2007 and 2021, stocks with responsible labels—spanning sectors from pharmaceuticals to food—typically traded at an increasing premium. While this premium has effectively disappeared since 2021, Orcadia views this as a stabilisation rather than a long-term decline.
De Callataÿ maintains that “a valuation premium for responsible companies is logically justified by academic research.” This logic is underpinned by factors such as enhanced employee motivation, greater customer loyalty, and a reduced cost of capital.
While the “green premium”—the higher valuation assigned to ESG-compliant companies—may not return to its 2021 peak, Orcadia expects it to rebuild over time, potentially driving stronger performance over the next five to ten years.
MSCI ESG vs SRI: Top 50% vs Top 25%
De Callataÿ explained that responsible investment is primarily organised around two major index families provided by MSCI: the MSCI ESG (Environmental, Social, and Governance) and the MSCI SRI. Both frameworks utilise a “best-in-class” methodology. This involves evaluating companies within their sectors and excluding those with weaker ESG profiles.
The fundamental distinction between these two families lies in their level of selectivity. The MSCI ESG indices are designed to include the top 50% of companies in each sector based on their sustainability rankings. In contrast, the MSCI SRI indices apply a more rigorous filter, retaining only the top 25% of performers—the top-performing companies that exhibit the highest standards in governance, social rights, and environmental protection.
Orcadia bets on allocation over stockpicking
Orcadia’s active management focuses on broad strategic decisions rather than stockpicking within sectors. The firm does not try to predict whether one company will outperform another (e.g., Apple vs Samsung). Instead, it concentrates on two levers: overall asset allocation (adjusting equity exposure) and geographic allocation.
Geographic weights follow a rules-based approach combining GDP and market capitalisation. As a result, US exposure has increased from roughly 40% to 55%. Although the US represents roughly 65% of global market cap, the GDP factor tempers the allocation, de Callataÿ underscored. Orcadia follows this disciplined framework rather than relying on discretionary decisions.
Implementation can be active or passive. Passive exposure is gained through ETFs tracking market-cap-weighted indices such as MSCI SRI. Orcadia uses a hybrid model: active funds incorporate ETFs to enable strategic regional positioning (e.g., overweight US, underweight Japan) while benefiting from liquidity and lower costs.
The same approach applies to fixed income. While funds may include other vehicles, they also hold direct equities to reflect strong conviction, creating a balanced model that combines cost-efficient indexing with active oversight.
Changing benchmarks complicate performance assessment
A key technical aspect of Orcadia’s strategy is its transition from using the MSCI SRI index to the MSCI ESG index. The SRI index is significantly more demanding, employing a restrictive 25% filter to select companies. However, the economist explained that market performance in 2024 and 2025 has been highly concentrated in a small number of stocks.
In such a heterogeneous environment, a highly restrictive filter increases the risk of missing out on the few “super-performers” that drive market returns. By moving to the MSCI ESG index, “Orcadia seeks to reduce the risk of significant deviation from the benchmark while maintaining its commitment to ESG investing.”
When asked about the performance of Orcadia’s flagship fund over 1, 3, 5 and 10 years—a market standard—against its benchmark, de Callataÿ referred to Chart 2 below.
Chart 2: Cumulative performance of Protea Orcadia GS Balanced vs. 30 competitor funds (May 2016 to March 2026) Source: Orcadia
However, the chart provided does not compare the fund directly to a single benchmark. Instead, it reports performance against an Orcadia-constructed composite of “medium” patrimonial, responsible, and traditional funds.
Just 1 in 10 active funds outperform
Morningstar recently reported that only 11% of active equity funds outperformed over a 10-year period. However, it has yet to systematically assess the performance of sustainable funds against benchmarks such as MSCI SRI or ESG indices, making it harder to identify best-in-class managers in the segment.
This broader challenge in active management further complicates the assessment of ESG strategies, particularly when the usage of benchmarks is not consistent.
