Traditional energy shares, such as those in fossil fuel companies, still have a place in sustainability funds, the chief investment officer for environmental, social and governance (ESG) at Deutsche Bank's Private Bank told Reuters.

"When we think about clean energy, these are business models which are quite new and sensitive to interest rates," said Markus Müller, noting that the number of "meaningful" global wind power players had reduced to three from eight before COVID-19.

Fossil fuel stocks have soared since Russia's invasion of Ukraine in February 2022 resulted in higher fossil fuel prices, to the detriment of the performance of ESG funds.

Muller said that excluding traditional energy shares denies investors one of the best ways to bet on a shift to renewable energy.

"Investors are looking for traditional [energy] companies that have [capital expenditure] in renewables. ... They prefer the transition ... to exclusions," he said.

European oil and gas companies including BP and Shell have increased renewable energy investment, while expanding production of dirtier energy as well.

Sustainability-minded investors, Müller said, needed more disclosures from firms about their plans for shifting to lower-carbon models, and regulatory clarity on labelling transition-focused funds, according to Reuters.

Investors remain committed to sustainability goals, Muller’s office found in a survey that received 1,759 responses, mostly in Europe. Eighteen percent chose the energy transition as their preferred investment opportunity, beating artificial intelligence. The survey also found that only 15 percent of investors said they had a good knowledge of ESG, while 3 percent considered themselves experts.

Only 37 percent of the respondents strongly or slightly agreed that ESG factors can help manage portfolio risks, down from 44 percent last year and 48 percent in 2021.