MSP’s Meatyard: ESG is not disappearing, it is becoming more embedded

After several years of rapid regulatory change, the sustainable investment industry is entering a more grounded – if still imperfect – phase with clearer rules, better discipline around fund labelling, and a gradual shift away from headline sustainability language towards more embedded ESG practice, according to Sophie Meatyard (pictured), head of fund research at MainStreet Partners.

Regulation has clearly dominated the agenda over previous years but not always for its smooth delivery, and alignment still remains an issue, she told PA Future.

“The main thing, as it has felt like for a while, has been regulation,” she explained. “In Europe, the ESMA naming guidelines were a really significant change to the status quo.”

Alongside ESMA, the UK’s Sustainability Disclosure Requirements (SDR) has also begun to reshape the landscape. While there were initial frustrations around fund labelling approvals from asset managers, Meatyard cautioned against impatience.

“SDR was a very significant piece of regulation, which generally we feel quite positive about,” she said. “But I think everybody expected the world from it quite quickly, and it just hasn’t been given enough time yet. We are also still waiting on the MPS piece.”

Both ESMA and SDR rules triggered widespread fund name changes across Europe, particularly around exclusions and sustainability terminology, which Meatyard said was long overdue.

“We just saw so many funds change their names. In the passive space especially, I was particularly happy to see screened funds actually being called screened, rather than ‘sustainable world’ when you’ve excluded three names. That’s much more helpful for the end client.”

Looking ahead, Meatyard sees the lack of alignment between ESMA and the evolving SFDR 2.0 framework as one of the biggest challenges for 2026.

“There’s a lot of alignment, but there are a few points where it’s not aligned,” she explains. “You could be in line with SFDR 2.0 but in breach of the ESMA naming guidelines – that’s obviously not helpful.”

She points in particular to differences around minimum alignment thresholds and how ESG terminology is treated.

“ESMA triggers tighter exclusions and requirements around the term ESG than SFDR does,” she explained. “Those two things not being aligned just adds confusion, when the whole point is to make things clearer and easier.”

SFDR 2.0 could bring much-needed clarity

Despite these frustrations, Meatyard is broadly supportive of the direction of travel under SFDR 2.0.

“We agree with a lot of the concepts in SFDR 2.0,” she says. “That ESG bucket will be a very good place for a lot of Article 8 funds that were never really sustainable – they were doing good ESG integration, but they were wrongly labelled.”

She also points to the proposed transition category as a positive development.

“It gives a proper home for transition strategies, PAB [Paris-aligned benchmarks] and CTB [climate transition benchmark] funds and other low-carbon approaches,” she says. “It’s a good move – it would just be better if it was slightly more aligned with ESMA.”

ESG ratings regulation becomes the next test

Another major focus heading into 2026 is ESG ratings regulation in Europe, which comes into force in July. ESG rating providers established in the EU will now need to be authorised and supervised by the European Securities and Markets Authority (ESMA) and comply with transparency requirements – disclosing the methodology, models and key rating assumptions as a minimum.

Separate E, S and G ratings should be provided and, if a single ESG rating is provided, rating providers will be required to disclose the rate and weight attributed to each dimension.

“For us, and for peers in the ratings space, this is the big thing coming,” the head of research said. “It’s about public methodologies, being really clear on where ratings are coming from, and having tighter processes around changes.”

While much of the regulation is manageable, some elements raise practical questions.

“If a rating changes by a certain amount, you have to notify the issuer,” she said. “That’s fine when it’s an asset manager – we have those relationships. But if it’s a sovereign rating, are we really messaging someone in the Kenyan government to tell them their ESG rating has changed? I’m not sure how that bit pans out.”

However, she highlighted demand for ESG ratings has not waned.

“We’re not seeing any drop-off at all. ESG ratings are still very much in demand. It’s more the sustainability labelling side that’s harder to call.”

Less labelling, more substance

One of the more subtle trends Meatyard expects to shape 2026 is a quiet move away from sustainability labels – not because ESG is disappearing, but because it is becoming more embedded.

“I wasn’t sure about the greenhushing conversation before – it felt a bit over-egged.

“But I am now starting to notice more funds not launching with ‘sustainable’ in the name, because they think it reduces investor appetite.”

Instead, managers are framing ESG as part of idea generation and risk management.

“They see it as part of the investment opportunity, and that, in itself, could actually create more appetite for sustainable strategies – even if they’re not labelled that way.”

With regulatory implementation absorbing less time, Meatyard expects stewardship and engagement to move back into sharper focus – but with greater scrutiny.

“The language around engagement is still very loose in many cases,” she said. “People will say they’ve done hundreds or thousands of engagements, but often it’s just a meeting where ESG was one tiny topic at the end – if it even got discussed.”

Meaningful engagement needs clearer intent, she added.

“We really want to understand that people are doing specific engagements with targets – not just meetings.”

Culture as a risk management tool

Another area gaining prominence is organisational culture within asset managers.

“We’re introducing a question around culture in the next version of our model,” Meatyard, who is a member of the ACT Stewardship Council governing the industry’s corporate culture standard, said. “The focus is on whether firms are creating a culture that allows for good risk management – things like people being able to speak up, or rotating meeting chairs.”

She is clear that the aim is not to penalise firms.

“We cover almost 500 asset managers, and we don’t want to be penalising people.

“It’s about giving people the opportunity to start their journey and move forward.”

Themes to watch

Beyond regulation, Meatyard highlights several themes within sustainable investment that continue to build momentum:

“Water infrastructure is one that just keeps becoming more important.

“People are recognising issues around water security and resilience much more.”

She also noted increasing discussion around climate adaptation.

“We’re hearing more about adaptation in meetings. It still feels like a small subset of the universe, often in private markets, but from a risk management perspective it’s becoming more interesting.”

Finally, she points to infrastructure, particularly energy grids, as a long-standing issue that is gaining renewed urgency.

“People have been telling me the grid needs investment for about 10 years,” she said. “But with AI, it feels like something that’s still being slightly forgotten.”

A more mature phase ahead

Overall, Meatyard’s outlook for 2026 is cautiously optimistic.

“I do feel positive about the regulatory changes laying clearer ground,” she said. “It’s creating a better landscape for investors to choose from – even if it’s not perfect yet.”

The challenge now, she suggested, is ensuring sustainability remains rooted in robust risk management, credible engagement and transparency – rather than labels alone.