Despite the challenges, UK sustainable investment manager EdenTree said that in 2026 it is committed to investing in businesses that deliver positive outcomes for people and the planet. 

Sustainable investment manager EdenTree said it had been a tough year for sustainable investing. “Political polarisation, particularly in the US, has led to setbacks in climate policy and prompted some institutions to dilute their commitments. Yet history tells us these backlashes are cyclical, and we remain resolute in our thinking,” the firm said in a statement.

EdenTree believes that climate change poses a growing threat to both people and planet, and it sees it as a financially material risk. “It is, therefore, our fiduciary duty to address this risk in order to protect and grow long-term value for our clients,” the firm continued.

“We are hopeful that the negativity surrounding ESG and sustainable investing is reaching its nadir, and this hope drives our anticipation of a re-emergence of sustainability themes in 2026 – a view that has been affirmed by both flows and company valuations,” the firm said. “We believe that younger investors, in particular, will drive part of this re-emergence through their engagement with issues such as climate change and social inequality, meaning that EdenTree’s long-term story remains very much alive.”

Energy transition
Like other wealth managers, the firm thinks that the energy transition will define the investment landscape in 2026. In terms of the macro picture, the trajectory of interest rates will play a big role in shaping market performance in 2026; rates will not only influence asset class returns but will also set the rhythm for global economic growth. “Our expectation is for a gradual downward shift as inflationary pressures continue to ease – though any deviation from this could spark renewed volatility,” the firm added.

Beyond rates, one theme that stands out to the firm is energy. Its resurgence as a core market driver, and its role as a potential bottleneck for growth areas such as artificial intelligence (AI), cannot be ignored. The firm is optimistic about the energy transition, which demands rapid, scalable and cost-effective deployment. Renewables sit at the heart of this transformation, and EdenTree believes that its funds will be able to capture growth in this space. In its opinion, energy will define the investment landscape in 2026.

That said, the firm thinks that there are still potential challenges. “Geopolitical tensions are at their highest in years. Consumer confidence, especially in the US, could falter further, with global repercussions. And certain market segments show signs of stretched valuations,” the firm continued. But beyond these risks, the rewards are compelling. “Particularly with regard to the energy transition, which is not a single trade, but a multi-year story of generation, storage, grids and efficiency, building the backbone of a more productive, lower-carbon economy,” the firm said.

Despite the challenges, in 2026, EdenTree believes that sustainable investing is where innovation, resilience and value creation will meet.

“Despite a turbulent period for sustainable investment, investor appetite and industry commitment remain. With regulatory foundations now firmly in place, we believe the conversation will shift beyond rules and frameworks to focus on driving credible action and evidencing real-world outcomes,” Carlota Esguevillas, head of sustainable investment, said.

The firm said that the last few years have seen a fundamental reshaping of the sustainable fund landscape. Morningstar’s latest research highlights that across Europe, 28 per cent of ESG products, or around 1,500 funds, have been renamed since the start of 2024.

Looking ahead to 2026, the firm expects this trend to ease with major regimes such as the UK’s Sustainable Disclosure Regulation (SDR) having had time to bed in, and those fully committed to sustainability are now aligned with one of the four recognised labels. As this period of adjustment comes to an end, the funds landscape will be clearer, with naming and marketing far more reflective of underlying investments – a positive development for investors, the firm said.

With rules, disclosures and frameworks now embedded, EdenTree expects to see the conversation evolve beyond labels, looking at how these structures translate into measurable results – both in financial performance and real-world sustainability outcomes.

In 2025 a host of asset managers stepped back from previous sustainability commitments, with collaborative initiatives faltering under member pressure. While greater accuracy in sustainability claims is no doubt positive, the firm is concerned about the long-term implications of corporations and asset managers abandoning efforts to promote action on climate change, diversity and other critical issues.

Global environmental and social challenges haven’t gone away; if anything, they’re getting worse. In 2026, EdenTree believes that scrutiny on effective long-term stewardship will be essential. “The Financial Reporting Council (FRC) Stewardship Code – due to take effect next year – will set new standards for the sector, but asset managers and clients alike must reflect on which tactics and methods are most effective in driving real-world outcomes in a rapidly changing and increasingly complex geopolitical environment,” the firm said.

“I expect economic growth will be the biggest factor influencing European market performance in 2026, as its trajectory for the year is clouded by uncertainty,” Chris Hiorns, head of European equities, continued: “Economic growth will be the central theme influencing market performance in 2026.”

The global economy is just beginning to feel the bite of US tariffs, with their impact slowing global trade and redirecting flows across regions. This disruption has already contributed to a softer economic backdrop, and the European equity markets may feel the weight of these headwinds in the first half of 2026. However, interest rates are trending lower, creating the potential for a more supportive economic environment later in the year which could help a broader recovery in the second half of 2026, the firm said.

The Edentree European Equity Fund
The firm’s approach remains disciplined. It is entering 2026 with a defensive tilt, favouring sectors that offer resilience, such as utilities, telecommunications, food retail and, more recently, pharmaceuticals. These areas provide stability while allowing the firm to navigate the weaker outlook anticipated for the first half of the year. However, the firm is not blind to the opportunities that volatility can create. It believes that cyclical sectors, which are currently trading at depressed valuations, could offer upside should there be a recovery. Maintaining selective exposure here, especially in small and mid caps, will ensure that it is positioned to capture that inflection point.

Fixed income
David Katimbo-Mugwanya, head of fixed income, said the strategy for the year is to remain selective and flexible. He favours shorter to intermediate maturities, and thinks there is scope to go further down the capital structure in high-quality credit to capture yield and enhance carry – an important contributor to returns, assuming that spread movements remain relatively benign. New issuance is continuing to offer attractive opportunities, given how tight credit spreads are; the firm will continue to take advantage of these opportunities into 2026.

AI
David Osfield, manager of the EdenTree Global Equity Fund, emphasised how AI will remain a defining force in global markets in 2026. “In 2026, artificial intelligence will remain a defining force in global markets. While market optimism on AI runs high, the real challenge next year will be execution – can the AI growth story deliver on the market’s high expectations without hitting major structural bottlenecks?” he said.

The first hurdle for employing AI is power. Even in tech hubs such as California, data centres are sitting idle because energy supply cannot keep pace with the rate of demand. Securing power has become a critical priority, and the scramble for land to build these new facilities is intensifying. The second hurdle is memory. Demand is currently three times greater than supply and expanding capacity this much will take years, meaning that growth is likely to remain constrained in the near term. The third hurdle is the “scaling wall” – which suggests that there are diminishing returns from creating larger models powered by faster chips, due to the scarcity of high-quality training data.

While AI captures headlines, the firm is watching the US housing market, as it believes the stage is being quietly set for a recovery here. After a period of negativity about housing data, it expects easing monetary policy and fiscal acceleration to revive activity. Markets are pricing two to three rate cuts in 2026, with the US Federal Reserve likely to end the year at around 3 per cent. That said, the path will be delicate, and inflation remains a wild card. Fiscal stimulus combined with a $1 trillion AI-driven capex boom could reignite price pressures, making it harder for the Fed to cut aggressively without unsettling markets.

Against this backdrop, the firm believes that residential and non-residential stocks offer compelling opportunities. Companies like Carrier and Builders FirstSource are well placed, not only for improvements in housing and industrial activity but also for their sustainable solutions. The firm's position in these companies reflects its belief that recovery is underappreciated and valuations remain attractive.

Asia, for example, continues to be an overweight for the EdenTree Global Equity Fund.

Greg Herbert, head of UK equities, also highlighted that UK equities are as cheap now as they have been for 30 years relative to global markets (of which the US now makes up 70 per cent).

Green infrastructure
"2025 was an odd year for green infrastructure,” according to Tommy Kristoffersen, manager of the EdenTree Green Infrastructure Fund. â€śAs we move into 2026, we maintain a positive outlook for the green infrastructure asset class. We believe the potential remains for share price recovery, followed by a return to the sector’s longer-term characteristics with steady returns from underlying income,” he said.