The sustainable finance industry closed out 2025 bloodied and bruised but still standing after a year of attacks from Donald Trump and reactionary lawmakers intent on reversing progress on environmental and social investing.
Regulators and legislators rolled back pro-sustainable investment rules in the United States, tightened guidelines in Europe and paused headway in Canada in a global onslaught on green financing.
Assets invested in environmental, social and governance portfolios flattened as the ESG term itself fell into disfavour among the least committed green funds and investment managers. Even so, growing interest in climate transition industries and renewable energy buoyed the sector’s prospects, strengthening impactful areas of sustainable finance.
So what’s next for 2026? Here are my predictions for sustainable and responsible investment for the year ahead.
1. Sustainable funds will assume a low profile in the battle for market share
The share of the total investment market in the U.S. held by sustainable finance held steady in 2025 at 11% of total assets under management in 2025, a slight decline from 12% a year earlier, according to the U.S. Sustainable Investment Forum, the industry’s trade group. Sustainable assets were US$6.6 trillion in 2025 and total assets under management were US$62 trillion. The estimate includes institutional and individual assets specifically labelled as “sustainable” or “ESG.”
Maintaining this market share in 2026 will be a challenge. The industry is facing a continuing barrage of anti-ESG rhetoric from the Trump administration. The attacks were exemplified by a September speech by Trump pension policy advisor Justin Danhof, who told an international conference in Paris that “ESG at its core, looks a lot like a Marxist march through corporate culture.”
The industry is taking a low profile in the face of such bombast. Only 10% of sustainable investment managers surveyed by US SIF this year said they planned to add significantly to their assets in the next 12 months, and about a quarter said they plan to moderately increase their allocation. About half are planning to hold their sustainable assets at the current level.
Some asset managers have become reluctant to publicly associate their sustainable funds with ESG strategies. One in four sustainable investment managers surveyed by US SIF said they have stopped using the ESG acronym.
Launches of new sustainable funds around the world have largely dried up. Morningstar said there were only 26 new sustainable funds launched in the three months ending Sept. 30, down from 92 in the 2nd quarter and significantly lower than the 200 funds launched in Q4 2022. Of the 26 launches, 20 were in Europe.
The takeaway: As the Trump assault on ESG continues, large mainstream investors like BlackRock, State Street and Vanguard will keep their heads down. Don’t expect a revival in sustainable fund launches or increased ESG marketing in 2026 and not until 2028 near the end of Trump’s term.
2. Banks will ramp up financing for liquified natural gas projects
The world’s largest banks provide important financing to fossil fuel and renewable energy companies through loans and underwriting services. As a major source of capital to oil and gas, climate action groups are pressuring banks to phase out their fossil fuel financing.
Initial data shows banks reduced fossil fuel financing by about 25% in the first seven months of 2025 compared with the same period a year earlier. The current glut in oil supplies has put a damper on new drilling and reduced demand for capital, particularly in the U.S.
Nevertheless, lending and underwriting to the fossil fuel industry is expected to grow in the coming year because of a continued global expansion in liquified natural gas (LNG) infrastructure. According to Paris-based Reclaim Finance, there are 279 new LNG projects planned around the world. If completed, these projects will produce enough gas to create more than 10 billion tonnes of CO2 annually (or more than a quarter of all current energy-related emissions), “destroying any hope of achieving global climate goals,” says Reclaim Finance. The group estimates that global banks have already provided US$174 billion to LNG projects between 2021 and 2024.
The takeaway: With some exceptions such as a possible new oil pipeline in western Canada, demand for bank financing for oil companies and projects will weaken in 2026 along with lower oil prices. But the massive expansion in LNG projects will continue to create demand for gas infrastructure financing. This will trigger added pressure on the banks by climate action groups and Indigenous communities to turn off the taps to the gas industry.
3. Renewable energy and climate transition industries will be a bright spot
As 2025 came to a close, stock markets became increasingly jittery over prospects for the highly concentrated tech sector, especially the so-called Magnificent Seven stocks that make up about 35% of the S&P 500 index. Concerns are growing that the colossal runup in these stocks caused by massive investments in data centres is coming to an end.
The stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet and Tesla) were darlings of conventional investment portfolios in 2023 and 2024. Many broad-based sustainable portfolios with ESG screens also held them based on neutral to positive rankings on most environmental and social issues.
Popularity among ESG investors started to cool in 2023 after the introduction of ChatGPT raised concerns over massive AI data centre energy demands and other environmental issues such as water use. There are also exploding concerns over the role of social media in shaping political views among many groups such as young men.
Now, some conventional analysts are suggesting investors should take their profits from the Magnificant Seven and rotate into other sectors such as energy and industrial stocks. For sustainable investors, this could be a good time to buy shares in clean energy companies, which outperformed both tech and oil in 2025, and climate transition industries.
Examples of such companies can be found in the Morningstar Sustainalytics 21-company climate transition list. The names include Italian utility Enel, electrical component manufacturer Schneider, Norwegian aluminum and energy producer Norsk Hydro, industrial gas manufacturer Air Liquide and wind power systems company Vestas.
The takeaway: Look for continuing strength among renewable energy stocks in 2026 as well as some surprise breakouts in industrial and basic materials companies with strong CO2 emission policies and product lines that will benefit from the climate transition.
Read Eugene’s predictions from last year
4. European sustainable fund turmoil will come to an end
Europe, where about 85% of the world’s sustainable fund assets are located, has been embroiled in a year-long controversy over how its sustainable funds should be named or described to investors. Morningstar estimates that more than 1,500 funds with a value of more than US$1 trillion, or 28% of the sustainable funds in Europe, have been renamed since the beginning of 2024. More than 700 of these were renamed in 2025.
The key issue is a new set of rules stipulating that funds with environmental terms in their names must exclude fossil fuel holdings and ensure at least 80% of their portfolio meets environmental goals. Funds using a “sustainable” name must show meaningful holdings in sustainable assets. The rules were established by the European Securities and Markets Authority (ESMA) with a May 2025 compliance deadline.
Most funds that changed their names dropped the term “sustainable,” “ESG” or “responsible” from their labels but didn’t change their objectives or strategies. The controversy has created confusion among investors and reinforced greenwashing suspicions.
In November, the European Commission proposed a set of amendments to its Sustainable Finance Disclosure Regulation (SFDR) to further clarify naming rules for sustainable funds. Going forward, funds will fall under three labels: sustainable, transition and ESG basics.
The Institutional Investors Group on Climate Change welcomed most of the changes, saying they are useful tools for fund transparency. However, IIGCC also said that a streamlined list of mandatory criteria for assessing assets could help to promote greater comparability between funds. The package will now go to the European Council and Parliament for final approval.
The takeaway: Now that the ESMA renaming controversy has eased, European fund managers and advisors have a better framework to explain the differences in sustainable fund approaches. And while the new SFDR rules won’t be finalized until 2027, fund companies and advisors can immediately discuss investments with their clients using the new framework, suggesting options for clients concerned about issues such as fossil fuel holdings in ESG funds.
5. Canadian pipeline plans won’t find private investors
A sustainable investment controversy is brewing in Canada over the recent agreement between Prime Minister Mark Carney and Alberta Premier Danielle Smith to work toward a new pipeline to ship oilsands bitumen to the west coast. Almost immediately after the November announcement, industry experts and critics said the pipeline is not feasible since there is no private sector proponent, required Indigenous approval is unlikely and the British Columbia government is opposed to lifting a west coast tanker ship ban.
What few people have talked about is that it is also unlikely a major bank, consortium or equity investor will also come forward. There is no official cost estimate for the project. However, based on other recent pipelines, it would likely be in the tens of billions of dollars, a cost too high to be recovered through oil transit tolls, according to the International Institute for Sustainable Development. Investment analysts have expressed skepticism the pipeline will receive private sector support.
Even if the economic model for the pipeline worked, any bank or consortium of lenders or equity investors would be hesitant to back the project. One of the last major pipelines constructed in Canada – Coast GasLink – triggered multi-year vocal protests at RBC, one of its lenders. Given the high-profile nature of the west coast oil pipeline, similar protests could be expected at any bank or equity investor supporting the project.
The project is also unlikely to fall within the green or transition “taxonomy” guidelines to be developed starting in 2026 governing which Canadian investment activities will be officially labelled as sustainable. Development of the guidelines will be led by the Canadian Climate Institute think tank, and Business Future Pathways, a coalition headed by a whos-who of sustainable investment champions and representatives of climate action NGOs. Even if oil shipped through the pipeline will be produced with lower per barrel process emissions than present oilsands oil, it will be tough for the new group to give such an investment a transition label given the high level of Scope 3 or end-use emissions it will facilitate. It’s highly unlikely banks or equity investors will be able to proclaim investment in the pipeline as a transition investment.
The takeaway: The lack of a pipeline company or group of companies to champion the project in 2026 will enable banks and equity investors to stay on the sidelines. Given the longstanding glut in oil supplies, there will be little progress on the project in the coming year despite ongoing political support from Ottawa and Alberta.
The big picture
The Trump administration is ramping up its attacks on sustainable finance and ESG and its support for fossil fuels. This has provided hope for oil and LNG proponents that the financial community will get behind an expansion in conventional energy. The economics of alternative energy sources suggest renewables should win out, but this is not a sure thing. What’s known is that inexpensive green energy and climate-friendly manufacturing are moving ahead. The crusade against ESG will continue for a few more years, but it won’t stop the smart money from supporting the industries of the future.
Eugene Ellmen writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association).
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