Green Funds or Greenwashed? The Fossil Fuel Dilemma in ESG Portfolios

In a world scrambling to combat climate change, investors increasingly turn to ESG (Environmental, Social, and Governance) funds as a moral and financial compass. But are these so-called “green funds” really driving sustainability, or are they just a clever façade for business as usual?

Image from Designing for Sustainability: A Guide to Building Greener Digital Products and Services, O’Reilly Media.

According to Morningstar’s 2025 ESG Market Report, ESG-labelled assets surpassed $50 trillion globally. Yet many ESG portfolios still hold shares in fossil fuel giants like ExxonMobil and Shell. How can a fund be “green” when it bankrolls companies contributing to the climate crisis?

This brings us to a growing controversy: greenwashing, when investments are branded as sustainable without meaningful environmental impact. In April 2025, a Reuters investigation revealed that 71% of leading ESG funds held fossil fuel or mining stocks. For students aspiring to work in finance or economics, this raises tough questions: Are ESG frameworks fundamentally flawed, or are investors complicit in climate hypocrisy?

The issue lies in inconsistent ESG criteria. Different rating agencies use different metrics. A fund might score highly on governance and social factors, even while holding polluters. Some asset managers argue it’s better to “engage” fossil fuel firms from within. But critics call this naïve. As The Guardian reported in March 2025, no major oil company in these portfolios has a credible net-zero plan.

This contradiction isn’t just academic. It distorts markets, misleads investors, and delays real climate action. Should regulators impose stricter ESG standards? Should fossil-free funds be the new baseline? And should we, students, future professionals, demand better? One thing is clear: if ESG is to mean anything, it must align with science, not just marketing. The IPCC’s 2025 update makes clear that fossil fuel expansion is incompatible with net-zero goals. Yet trillions of “sustainable” dollars say otherwise.

Let’s not accept a future where climate-friendly finance is an illusion. Ask tough questions. Check fund holdings. Challenge ESG labels. Because being green shouldn't just be good PR, it should be the price of a liveable planet.