People, planet and profit: exploring sustainable investment

July 2026  |  FEATURE | FINANCE & INVESTMENT

Financier Worldwide Magazine

July 2026 Issue

The phrase ‘infinite growth in a finite world is an impossibility’, popularised by economist E.F. Schumacher, posits that human capacity to exploit global resources is not inexhaustible, with the inference that sustainable investment offers a response to overconsumption.

Amid an increasingly complex and uncertain world, the sustainable investment market has made steady progress over recent decades – from early growth in the late 1990s, through the Paris Agreement in 2015 and a reversal in the wake of the Russian invasion of Ukraine in 2022, to today’s ‘new normal’. It has gradually evolved from a niche strategy into a mainstream approach focused on long-term value.

“Sustainable investment is evolving rather than retreating,” says Chris O’Bryen, stewardship lead at Hymans Robertson. “The focus is shifting from narrow, backward-looking metrics, such as portfolio emissions, toward forward-looking measures of transition readiness and portfolio resilience.”

Defined as a range of practices through which investors aim to achieve financial returns while promoting long-term environmental or social value, sustainable investment is distinct from the renewable investment subset that focuses specifically on financing renewable energy sources such as wind, solar, hydropower or geothermal energy. It combines traditional investment approaches with environmental, social and corporate governance (ESG) insights, enabling more comprehensive analysis and more informed decision making.

Organisations investing in sustainable projects are also less likely to be judged solely on short-term financial gains, and more on how their actions contribute to society. Investors must therefore consider carefully the environmental, political and societal implications of their decisions.

Increasingly, sustainable investment is also being shaped by changing expectations among end beneficiaries, including pension savers and retail investors, who are demanding greater transparency over how their capital is deployed. This shift is encouraging asset managers to provide clearer reporting, more robust engagement strategies and stronger evidence of impact.

In turn, this is fostering a more competitive environment in which sustainability credentials are scrutinised alongside traditional performance metrics. As a result, firms that fail to demonstrate authenticity and accountability risk losing both capital and credibility. Over time, this dynamic is likely to drive higher standards across the industry, embedding sustainability more deeply into investment culture rather than treating it as a peripheral concern.

In addition, the interplay between public policy signals and private capital allocation is becoming increasingly significant in shaping sustainable investment outcomes. Even where regulatory frameworks shift or stall, investors are using scenario analysis and stress testing to assess how portfolios might respond under differing transition pathways. This forward-looking discipline is helping institutions move beyond compliance-driven approaches toward more strategic positioning.

It also supports clearer communication with stakeholders, demonstrating how sustainability considerations are embedded within risk management and return expectations, rather than treated as an adjunct to core investment processes across global markets. This ultimately reinforces alignment between resilience and performance.

Emerging trends

Despite a complex and uncertain policy landscape – which can stymie investor efforts to anticipate long-term sustainability scenarios – support for sustainable investment remains strong.

According to FTSE Russell’s 2025 ‘Sustainable Investment Asset Owner Survey’, which includes insights from 415 asset owners across 24 countries, sustainability considerations remain firmly embedded in investment strategies. Some 73 percent of asset owners are implementing sustainable investment approaches, a figure largely unchanged since 2023.

The survey also shows that financial performance (56 percent) and risk management (54 percent) have become the leading motivations for sustainable investment. More than half of respondents believe these strategies help mitigate long-term risk and deliver improved risk-adjusted returns, while fiduciary duty, cited by 42 percent in 2025 compared with 14 percent in 2024, is an increasingly important driver. By contrast, societal good is now a secondary consideration for many asset owners, cited by 37 percent.

“Asset owners are increasingly considering economy-wide systemic risks that could undermine long-term financial objectives, alongside the real-world actions available to help mitigate those risks,” says Mr O’Bryen. “For example, some investors are reassessing low emissions index strategies to ensure they capture a broader range of climate and nature-related risks.”

Concern about climate risk is evident, with 85 percent of respondents ranking it as a major issue, up from 76 percent the previous year. While climate remains a primary focus, other sustainability factors, including diversity and inclusion and human rights, are also regarded as important.

“In climate, we are seeing a change in focus from a policy led transition toward net zero, to an expectation of increased physical impacts in a warming world, alongside a more technology led transition,” observes Mr O’Bryen. “This has made the measurement of climate risk more complicated and means that measuring headline company emissions is no longer the most effective tool – but these shifts also present new investment opportunities.”

Another emerging trend is a growing emphasis on local resilience in response to geopolitical uncertainty. This shift is prompting investors to focus more closely on regional physical risks, local energy needs, including renewables, and vulnerabilities to systemic risks such as biodiversity loss.

The significance of biodiversity loss has been further highlighted by a 2026 UK government assessment, ‘Global biodiversity loss, ecosystem collapse and national security’, which concluded that global ecosystem degradation poses a serious threat to food security, economic stability and international security.

Approaches to implementation

Investors have long pursued a range of approaches – both active and passive – to express their sustainability objectives, including thematic investing, ESG integration, exclusions and engagement.

According to the FTSE Russell survey, thematic investing at 60 percent and ESG integration at 61 percent remain the most widely used strategies. At the same time, engagement is gaining traction as investors seek to support the transition to low-carbon business models rather than divest from carbon-intensive assets.

Although the use of exclusions, or negative screening, has declined as a primary tool, 47 percent of respondents continue to screen securities, often alongside portfolio reweighting, to express sustainability preferences.

“For most investors, sustainability investing is viewed primarily as a way to manage unpriced risks and structural transitions, not as a trade-off against returns,” notes Mr O’Bryen. “Some are keen to drive real world impact more proactively, while ensuring strategic alignment and limiting downside risk.

“Investors are aware that there are ESG rating or classification systems, but most are less focused on labels and more on manager capability, stewardship quality and alignment with their objectives,” he continues. “Holding an ‘ESG fund’, however, is not a substitute for robust engagement, due diligence and achieving long-term funding outcomes.”

Barriers to adoption

Sustainable investment continues to face barriers to wider adoption. Regulatory uncertainty, political pushback and a short-term performance focus among some investors can create volatility and reduce trust. The lack of standardised global ESG metrics also makes benchmarking more difficult.

FTSE Russell survey respondents cited concerns about greenwashing, as well as the availability and accuracy of ESG data, as significant impediments. Differing disclosure requirements and taxonomies were also identified as key challenges in meeting regulatory obligations, alongside the difficulty of aligning portfolios or indices with evolving reporting requirements.

While there is no single standard approach to reporting the impact of sustainability initiatives, most reports align with recognised frameworks such as the Global Reporting Initiative, the Sustainability Accounting Standards Board and the European Sustainability Reporting Standards.

“Myriad disclosure criteria creates confusion and delays in due diligence associated with sustainable investments,” attests Pedro Moura Costa, chief executive of Sustainable Investment Management. “It is important to develop harmonised lists of criteria and procedures for due diligence in order to remove barriers for sustainable investment. We cannot have the situation where it is easier and faster to invest in assets that create environmental degradation than to invest sustainably.”

Sustainability bonds

Sustainability bonds provide a range of opportunities for investors seeking to align portfolios with financial objectives and internationally recognised sustainability goals such as the Paris Agreement and the United Nations Sustainable Development Goals. Issuance has grown rapidly and such bonds are now an established part of global fixed income markets.

“Sustainability bonds can play an important role in directing capital toward climate solutions while supporting portfolio resilience,” states Mr O’Bryen. “They can help diversify traditional credit allocations while providing exposure to issuers financing low carbon infrastructure, adaptation measures and supporting the climate transition.”

The Responsible Commodities Facility (RCF), for example, promotes the production and trading of responsible soy in Brazil by providing financial incentives to farmers through low-interest loans to cultivate soy without expanding into the Brazilian Cerrado.

Following the launch of an $11m pilot fund in 2022, supported by four-year green bonds purchased by Tesco, Sainsbury’s and Waitrose, the RCF expanded with the addition of Santander, Rabobank, IDB, FMO and AGRI3 as investors, providing more than $120m in loans to date.

“This is a growing area of interest for institutional investors, but successful allocation requires a clear understanding of both investment fundamentals and the credibility of the underlying sustainability outcomes,” says Mr O’Bryen.

Regulatory recalibration

After years of navigating a complex web of sustainability regulations, investors are likely to benefit from new frameworks aimed at reducing the legislative burden and improving the clarity, comparability and reliability of reporting.

In Europe, the European Union’s Omnibus I Directive, which came into force on 18 March 2026, introduces simplifications to the Corporate Sustainability Reporting Directive with the aim of streamlining corporate reporting. EU member states are required to transpose the relevant provisions into national law by 19 March 2027, with revised rules applying from 1 January 2027.

The directive seeks to reduce complexity, lower compliance costs and improve international alignment. It also aims to enhance interoperability with global standards and introduce technical improvements such as mandatory eXtensible Business Reporting Language (XBRL) tagging to facilitate automated analysis of sustainability data.

Taking stock

As investors assess their sustainability commitments for the second half of 2026 and beyond, they are recalibrating to reflect new risks and opportunities, including evolving regulation, revised performance metrics, and the social and governance implications of artificial intelligence.

Hymans Robertson’s ‘Sustainable investment: 2026 and beyond’ analysis highlights the importance of moving beyond headline portfolio emissions and focusing instead on real-world decarbonisation, transition readiness and underlying economic drivers. It emphasises that portfolio resilience requires balancing transition and adaptation, particularly as physical climate and nature-related risks become more financially material.

The analysis also underlines the continued importance of stewardship, noting that effective engagement remains a key mechanism for managing systemic risks and supporting long-term value creation despite political and regulatory headwinds. Finally, it observes that markets, rather than policy, are increasingly driving progress, with technology, capital allocation and investor pressure shaping the transition.

“The sustainability agenda will continue to evolve,” says Mr O’Bryen. “Building resilient portfolios will require a focus beyond portfolio emissions and a balance between supporting real-world decarbonisation while adapting to inevitable physical impacts. Alongside this, stewardship remains a key tool for addressing systemic risks and driving meaningful change across all aspects of sustainability and investment.”

Sustainable investment is becoming less about labels and more about judgement, adaptability and intent. As markets, technologies and expectations continue to shift, those investors able to navigate complexity with clarity and purpose will be best placed to unlock enduring value, while helping to shape a financial system that is as resilient as the world it depends upon.

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Fraser Tennant