Fatou: Global sustainable funds saw $84 billion in net outflows in 2025, reversing $38 billion in inflows the year before. The US leads the retreat, and fund managers are quietly dropping “ESG” and “sustainable” from their names. Is greenhushing a pragmatic short-term adaptation — or does it risk becoming a structural retreat that permanently weakens the ESG signal for LPs who depend on it?
Alexandre: I think it’s clearly a pragmatic, strategic short-term retreat. But to really answer the question, I’d go back to the origins of ESG. If you talk to practitioners who were in the first waves of impact investing — well before it was ever called ESG — many of them were using environmental, social and governance factors simply as risk management tools. What happened over time was a kind of euphoria, partly driven by the UN SDG agenda, where everything got labelled as contributing to sustainable prosperity.
I come more from a thematic, solutions-oriented perspective — let’s invest in companies that solve real problems — rather than from a compliance angle of making sure everything can be labelled ESG-compliant.
At Cape Capital, we do have exclusions based on what clients want to avoid, but when it comes to what we actively do in impact investing, we focus on themes we strongly believe in: climate and nature, both mitigation and adaptation. Because scientists are telling us 1.5 degrees is already off the charts, you can’t just invest in mitigation — you have to invest in adaptation too.
The deeper problem is that everyone tried to do ESG too much as a compliance exercise. ESG labels became disconnected from what was actually happening on the ground. You could have a company scoring brilliantly against an S&P ESG label and terribly against Morningstar — because the weights applied to governance or environment were entirely different. As an active investor, putting a generic ESG label at the front of your process is not really a way to assess fundamentals or find alpha. You have to drill down into the sub-indicators to extract anything meaningful.
Fatou: That connects to a debate that seems to be intensifying — financial materiality versus double materiality. Where do you see that landing?
Alexandre: Regulators are clearly moving back towards financial materiality — focusing only on the ESG factors that are financially material to a company’s health. The ISSB, chaired by Emmanuel Faber, is pushing exactly that direction. And that actually connects us back to where ESG started: what is genuinely impacting my company from a risk standpoint?
So greenhushing, in that sense, may be doing us a favour. Companies for whom it is still financially material to manage their governance, their water dependency, their soil exposure — they are still doing it. They’re just talking about it differently. We may emerge from this period with sharper, more economically grounded indicators that actually mean something, rather than the broad labels we had before.
Fatou: We’re seeing a lot of funds that were raised as cleantech or climate funds five years ago now rebranding as resilience funds. Is resilience a genuine evolution of the ESG thesis — or just the next label?
Alexandre: It’s both, honestly. A lot of climate-focused investors put capital into companies they believed could generate venture returns, but which turned out to be extremely capex-intensive. If you look at what happened in Sweden with Northvolt and others — investors lost significant money, and the narrative shifted. So when you hear the word “climate tech” today, many investors immediately think of big factories, big capital requirements, and losses.
The resilience framing makes sense because in a world that could be three or four degrees above pre-industrial levels, the disruptions will be profound and unpredictable. We’re already seeing early signs — water stress events, wildfires, and the ECB itself is now flagging how much of its loan portfolio is exposed to companies with high water risk.
That said, the resilience bucket can absorb almost anything — you can put the resilience of impoverished communities in sub-Saharan Africa in there, or you can put cybersecurity and defence in there. As an allocator, you have to go beyond the label and understand what a fund is actually investing in.
Fatou: Will resilience survive as a framework if the geopolitical environment stabilises — if NATO cohesion is restored, the Russia energy crisis recedes?
Alexandre: We tend to forget very quickly — I have no doubt the narrative would shift again. If you tracked Google Trends on the word “resilience” now versus in a hypothetical 12 to 24 months where tensions ease, you’d almost certainly see it fade.
But our thesis at Cape Capital is that regardless of geopolitical cycles or election outcomes, the economy is still polluting and depleting nature at an unsustainable rate in the medium term. Physics makes the final call here, not politics. The IPCC reports, the planetary health checks — those don’t change with election cycles. And we’ve seen some of the adaptation-oriented companies we invested in two or three years ago now thriving within the resilience narrative. They’re using it intelligently, and that’s fine. You have to be smart about how you communicate. But it doesn’t change our underlying conviction.
Fatou: The tension between defence and ESG frameworks is one of the most contested debates right now. The European Commission has clarified that defence is compatible with SFDR Article 8 — but critics warn of “peace-washing.” How do you navigate that as an investor?
Alexandre: It’s genuinely complicated and I can give you a concrete example from our own portfolio. We invest in a climate-focused venture fund with a very strong thesis around planetary boundaries. They recently invested in a company using autonomous drones to fight wildfires — piloted remotely, faster at detection, no risk to firefighters. Strong climate impact angle. But in five years, if there’s a large defence contract on the table, that company will face a choice.
We also looked for four years at a company developing proprietary sensors networked in a mesh across forests and critical infrastructure to detect wildfires faster than satellites. Today they have major contracts with oil and gas companies in Southeast Asia who want to protect pipelines. The same sensor can detect gases, hear gunshots, and monitor borders. You think you’re investing in wildfire prevention — and you end up adjacent to military applications.
As an allocator, this is very hard to control in a closed-ended fund structure.
Fatou: Does the trend in public markets on ESG typically bleed into private markets — or is it the reverse?
Alexandre: I think they feed into each other, but historically in ESG, the direction has been public markets first. The regulation, the norms, the institutional pressure — it all started in public markets and slowly got adopted by private markets. And what we’re seeing now, the retreat from ESG language and the shift in emphasis, is also trickling down from public markets into private markets.
Fatou: I agree with you, we saw it clearly in our own portfolio last year — a degradation of ESG indicators, partly because portfolio companies are no longer getting pressure from investors to focus on carbon footprint, diversity, or governance. When your investors stop asking, you redirect your attention.
Fatou: Where are you most excited to invest in the next 12 months?
Alexandre: I’m excited about what I’d call the AI derivatives wave — using AI to fundamentally disrupt how things are done in science and industry. We’re looking at a company in microbiology that is completely revolutionising the petri dish — from food and beverages to cosmetics to potential pharmaceutical applications — based on the transformer architecture applied to biology. That’s extremely exciting.
We’re also looking at AI for drug discovery, and the proprietary data infrastructure needed to train models in life sciences. The rate of success in drug development could go from 5% to 25% with AI — meaning you can test five times more drugs at the same cost, and potentially run clinical trials on more diverse populations. That’s a profound social impact that doesn’t always get labelled as such.
And I’m very excited about geospatial intelligence — using AI and satellites to understand climate risk, drought, floods, and connecting that to insurance and risk modelling. Google has done extraordinary open-source work with Google Earth data, and the ability to process that at scale is creating entirely new applications.
Fatou: And where would you not invest?
Alexandre: Any company whose investment thesis is fundamentally based on government subsidies or private subsidies for that matter — whether Microsoft’s carbon commitments or the US Department of Energy’s direct air capture grants. Unless governments feel compelled to decarbonise because of direct risk to their citizens and tax base, direct air capture and similar technologies haven’t reached economic parity. They’re a cost line without a viable economic model unless the EU emissions trading price makes them competitive.
I’d also put a number of food tech companies in that category — companies like Impossible Foods or Oatly, which built extraordinary narratives around sustainability and water efficiency, but whose premium pricing doesn’t survive when consumers are facing inflation. The share price tells the story.
More broadly, I wonder whether the traditional VC model maps well onto cleantech at scale. In pharma, you can finance innovation through VC and sell the molecule to a big pharma company. In cleantech, the capital intensity is comparable but the returns are not — because nature is not valued as it should be. Until that changes, the economics are very hard.
Fatou: Finally — why should impact matter to a private client who just wants returns?
Alexandre: Some of our clients have come to realise that what they hoped to achieve through philanthropy, they simply cannot — the scale is not there. Financial markets offer a chance to generate returns while doing good, but you have to be honest about the trade-offs. Not everything can be labelled impact investing and still deliver financial returns — there are real grey zones.
For families and entrepreneurs, it comes down to legacy and passion — what do you want people to say about you, what problem do you want to solve. That’s why we believe in being highly customised rather than broad-brush ESG. Generic sustainability labels work for pension funds. They don’t work for a family that wants to know exactly what is happening with their capital.
The economic case for impact in a portfolio is still hard to make with rigour — the data is improving, but it’s not settled. What I do believe is that physics is making the final argument. The underlying pressures — climate, nature, resource depletion — are not going away regardless of what narrative is fashionable. That’s where we keep our focus.
Alexandre Micheloud is an Investment Director at Cape Capital, where he leads impact and ESG investing across public and private markets. Cape Capital is a Zurich-based asset manager.
