Sustainable investing will continue to align profits with purpose in 2026

In financial market jargon, a “tourist” is a trend-chasing investor who jumps in and out of markets they know little about. In 2021 and early 2022, the sustainable investing market was crowded with tourists. Cheap capital, generous subsidies and an unending list of corporate climate commitments attracted a lot of new entrants. But in the ensuing years, as interest rates rose, valuations dropped and the political winds shifted, the tourists left.

Today, only the locals remain: investors with long-term objectives, who recognize good value for money and who know where to find the most enduring opportunities. In 2026, we believe it will be that renewed focus on the economic fundamentals of sustainable investing that will help ensure the practice continues on a growth trajectory.

Governments step back

One of the key drivers of this shift is the fact that governments are stepping back. In the U.S., the One Big Beautiful Bill Act accelerated the termination of the investment and product tax credits used in the solar and wind industries. The mad dash to qualify projects before those credits sunset will continue through mid-2026, but work will also begin on projects that will have to be financially viable without the benefits of taxpayer support.

Even Europe, which has pursued an aggressive policy agenda around sustainable investing, is easing back on some of its more onerous sustainability rules. In keeping with the EU’s broader push to improve competitiveness and simplify regulations, the EU Commission has proposed a series of amendments to its Sustainable Finance Disclosure Regulation that would ease key reporting burdens for asset managers. The European Parliament has also voted to both delay and limit the applicability of its Corporate Sustainability Reporting Directive and Corporate Sustainability Due Diligence Directive to only the largest companies.

A more focused proxy season

These policy changes mean that sustainable investors, more than ever, will have to make the case that social and environmental issues matter to corporate bottom lines in order to be heard. We expect this new dynamic to be on display in the 2026 shareholder engagement season in the U.S. Regulatory changes from the U.S. Securities and Exchange Commission mean companies will be more empowered to keep shareholder resolutions off of their proxy statements next year and many regular filers have already indicated they will not be submitting shareholder proposals. Only the most convincing arguments about the financial materiality of social and environmental issues are likely to get attention.

We believe they will get attention, because companies still recognize the relevance of social and environmental considerations to their financial success, even if they have dropped “ESG” and “DEI” from their vocabulary. As noted in a recent Financial Times article, Chief Sustainability Officers used to be hired as “strategic storytellers” but are now expected to add value as “technical experts.”¹

Shareholders have also shown a willingness to hold fast on corporate social and environmental initiatives. The average support for “pro-ESG” resolutions has been declining since 2021, but support for “anti-ESG” and “anti-DEI” resolutions—which often ask companies to backtrack on prior commitments—have failed to gain much ground at all. In some high-profile cases during the 2025 season, “anti-DEI” resolutions were resoundingly defeated at the board’s urging, winning less than 1% of the shareholder vote. We believe this trend will continue into 2026.

Exhibit 1: Voted Anti-ESG resolutions in U.S. markets

Annual figures from 2021 through 2025. Source: “Morningstar: The 2025 Proxy Season in 7 Charts”

Climate risks will remain at the top of the agenda

We also expect the physical risks of climate change to keep sustainability top of mind for business leaders in 2026. Aon, a major insurance broker, has estimated that global natural disasters caused at least $368 billion in economic damage in 2024, but that only $145 billion of losses were insured, exposing a significant climate protection gap.² Those losses either hit businesses directly or through the cost of increased premiums. The physical effects of climate change will also continue to flow through supply chains. In early 2025, drought and extreme heat in West Africa was a major contributor to an historic rise in cocoa prices. Confectionary companies have had to respond, in part, with the extraordinary step of taking chocolate out of chocolate candy.³ We expect “climate adaptation” to become an increasingly prominent investment theme in 2026.

Renewable energy will remain an opportunity

Focusing on the fundamentals does not just mean avoiding risk. We have been writing for the past several years about the investment opportunities associated with the renewable energy build-out in the United States. The loss of government subsidies and introduction of new domestic sourcing requirements will likely slow the pace of growth of wind and solar in the U.S. in coming years, but we believe rising power demand will provide a powerful countervailing tailwind.

Battery storage, in particular, is coming into its own not just as a complement to intermittent renewables but as a stand-alone energy solution. Bloomberg New Energy Finance is projecting global battery storage system deployments, excluding pumped hydro, will increase 33% by 2026.⁴

Exhibit 2: U.S. utility-scale battery storage capacity

Biennial figures from 2020 through 2026. 2026 figures are forecasts. Source: U.S. Energy Information Administration’s Short-Term Energy Outlook

Profits and purpose

In 2026, sustainability remains relevant not because it is fashionable, but because it continues to align purpose-driven investing with the economics of long-term value creation.

Financial materiality and risk-adjusted return have always been a priority for the most serious and disciplined sustainable investors. But the market has been buffeted by political winds in recent years, and we believe this message—that social and environmental sustainability can be integral to business and investment success—deserves renewed attention. We expect sustainable investors to talk less about how their strategies connect to broader policy goals and more about financial performance and risk.