Five themes for sustainable investment in 2026

After a bruising period for sustainable investment featuring political turbulence, regulatory overload and market scepticism, 2026 looks set to be a year of consolidation and maturation rather than further retreat, according to market observers.

While political noise and ESG backlash will continue to play a role in the narrative, the underlying regulatory frameworks, capital flows and investment opportunities are quietly solidifying, maturing and becoming more precise.

The key argument is no longer whether sustainable investing survives, but how it is shaped in an environment where credibility, real substance and authenticity are replacing greenwashing.

“With regulatory foundations now firmly in place, we expect the conversation to shift beyond rules and frameworks to focus on driving credible action and evidencing real-world outcomes,” commented Carlota Esguevillas, head of sustainable investment at EdenTree, and member of the PA Future Committee.

PA Future asked wealth managers, fund managers and consultants their insights on the outlook for sustainable investing in 2026.

Regulation: Less noise, more precision

Regulatory change remains a defining backdrop for the sustainable investment landscape, but commentators noted the direction of travel is changing with fewer, clearer rules but enforced more rigorously.

Naheed Tapya, EY UK & Ireland wealth & asset management sustainable finance lead, said the upcoming revisions to the EU’s Sustainable Finance Disclosure Regulation (SFDR) are firmly on asset managers’ radar, particularly for funds marketed into Europe: “Under the proposed new framework, funds will no longer be able to make sustainability claims without having a SFDR label,” said Tapya. “That increases the importance of clear product disclosure and agreeing the investment philosophy of products and the corresponding SFDR label.”

The emphasis, Tapya argued, is not on doing “more” ESG, but on doing it better. “Due diligence on underlying investments and third parties is essential to ensure robust, evidence-based processes are in place,” she explained, particularly as firms update European ESG Templates (EETs) to support distribution.

Meanwhile, in the UK attention is turning to simplification. Ongoing consultations around integrating International Sustainability Standards Board (ISSB) requirements into the UK framework could reduce reporting burdens and free up resources for firms to focus on implementation rather than box-ticking.

“The FCA’s ongoing consultation on the ISSB within the UK disclosure environment is important,” Tapya said. “It will help reduce burden on businesses and free up resource to focus on delivering value.”

Paul Hamalainen, director of sustainable finance at Forvis Mazars, also praised the UK’s approach to regulation – ISSB adoption, SDR and stewardship expectations in this space compared to the EU.

“The UK has taken a very pragmatic approach,” he said. “They’ve looked at how sustainability reporting and stewardship mature over time, rather than going all in and then having to rein it back.”

Stewardship becomes ‘more complex’

While engagement remains central to sustainable investing, its effectiveness is increasingly shaped by geopolitics, particularly in the US, commentators said.

Ita McMahon of Castlefield points to mounting challenges around shareholder rights in US markets, including growing scrutiny of proxy advisers and uncertainty over the role of regulators in arbitrating shareholder resolutions.

“It can be a lot harder to engage directly with companies, especially the very big ones, and shareholder resolutions are becoming more difficult to pursue.”

However, McMahon emphasised this is not investors turning their backs on stewardship, but a more complex phase. Support for shareholder resolutions continues in pockets, with meaningful backing for proposals on issues such as human rights, even amid political resistance.

“Despite some of the challenges, things are continuing,” McMahon added. “We’ve seen successes in 2025 – for example, a human rights resolution at Microsoft’s AGM received 27% support, which is massive.”

In the UK, 2026 will see the UK’s updated Stewardship Code come into force, with streamlined reporting designed to reduce burden and manage expectations – despite earlier concerns over the updated definition of the term ‘stewardship’.

“The idea isn’t just to add more reporting,” Hamalainen said. “It’s about being clear what the policy is actually trying to achieve, and whether that’s working in practice.”

Peak ESG backlash?

Commentators were split on whether the sustainable investing has passed the worst of the political backlash, but many report seeing resilience behind the scenes. Although groups are no longer shouting about ESG from the rooftops, they are still quietly meeting working towards targets emissions reduction and engagement targets, etc.

“For some firms, ESG may be lower down the agenda now than in previous years,” said Tapya. “However, sustainable investing is still integral to delivering long-term value for clients.”

Crucially, she added: “Generationally, investor appetite for sustainable solutions may pick up in the future, and firms may see the pendulum swing back over the next five years. Firms that fail to strengthen their capabilities now may risk losing competitive advantage.”

Carlota Esguevillas, head of EdenTree’s responsible investment team, agreed “investor appetite and industry commitment remains” while McMahon echoed “demand for us has been really steady” highlighting clients are asking ethical questions about their holdings, prompted by the geopolitical backdrop.

Tertius Bonnin, multi-asset portfolio manager on EQ Investors’ MPS range, also highlighted the potential opportunity set: “Right now, there’s no valuation premium for well-run ESG companies,” he said. “That tells you the market has completely reversed how it appreciates ESG.”

AI: Implications and an enabler

The environmental concerns around the energy usage of artificial intelligence have been well versed, as highlighted by David Osfield, manager of the EdenTree Global Equity fund: “The first hurdle to the AI story is power. Data centres are sitting idle because energy supply cannot keep pace with demand. Beyond chips and memory, securing energy and land has become a critical priority, and those constraints will shape how AI actually scales.”

However, EQ’s Bonnin said this will act as an enabler for renewable energy: “What will really constrain AI is electricity and water,” he says. “You cannot build out data centres without addressing energy supply and resource use.”

Again flagging the valuation opportunity here, he said: “That means you can buy lower-risk businesses at a discount, which is attractive in an uncertain market.”

From mitigation to adaptation

The focus on adaptation is another shift gaining momentum in 2026 as the realisations that some climate change impacts are now unavoidable.

“We may now be facing the reality that we’re going to be in a warmer world,” said Bonnin. “If that’s the case, investors need to think about the downstream impacts.”

See also: Bridging the adaptation gap

Water infrastructure, insurance and resilience-focused business models are moving up the agenda. “Insurance sounds dull, but it’s absolutely critical,” he adds. “If you’re in an area prone to flooding or wildfires, access to insurance determines whether losses are manageable or catastrophic.”

Daniel Lurch, portfolio manager of the JSS Green Planet fund, also sees opportunities in decarbonising solutions: “Structural demand for decarbonisation, energy security and electrification is simply too powerful to ignore,” he said. “We see the green transition as a structural, multi-themed investment universe.

“Beyond renewables, there are compelling opportunities across waste management, water treatment and infrastructure that are reshaping how the economy functions.”

Evolution of sustainable portfolios

In terms of product development, Bonnin also highlighted a turning point in how sustainable portfolios are constructed. In the past, these have been stand-alone, often wide-reaching global growth portfolios, but new launches are offering something different.

“Historically, sustainable portfolios were more growth-oriented and exposed to small and mid caps,” he said. “Now we’re seeing more credible, core strategies that offer broad market exposure across multiple sustainability themes.”