Sustainable investment outlook 2026

Macroeconomic backdrop

Global GDP growth is forecast at around 3.1–3.2%, underpinned by US resilience and gradual recovery in Europe and Japan. Central banks are likely to ease policy cautiously, creating a supportive environment for risk assets. Inflation remains sticky, and geopolitical fragmentation continues to disrupt trade and supply chains, reinforcing the need for diversification and a defensive tilt.

Despite elevated US valuations, earnings growth is robust. Technology giants remain the most profitable businesses globally. The four leading hyperscalers (Microsoft, Amazon, Alphabet, and Meta) posted record revenues in Q3 2025, with combined capital expenditure exceeding US$121bn, fuelling growth in computing capacity. Nvidia is a key beneficiary, underpinning its position as one of the largest holdings in our Sustainable Investment Funds.

Beyond technology, financials and infrastructure stand to benefit from fiscal spending and security priorities. Conventional gilts remain attractive for yield and diversification.

Artificial intelligence: a structural theme with environmental, social and governance (ESG) implications

Artificial Intelligence (AI) remains the dominant structural theme globally. Impressive capital expenditure in data centres, semiconductors, and cloud infrastructure is driving earnings growth beyond traditional technology sectors. Industrials, utilities, and infrastructure providers are emerging as beneficiaries of this digital transformation.

AI featured prominently at COP30, where discussions focused on its potential to accelerate climate action: from smarter grids and emissions tracking to climate resilient infrastructure. However, concerns over AI’s energy footprint and misinformation risks prompted calls for strong governance and clean power supply. This paradox is central to sustainable investors’ engagement, and we remain committed to identifying best practices through dialogue with the companies we invest in.

Sustainability: from compliance to competitive advantage

Sustainability is now a wide performance driver. ESG frameworks are evolving beyond labels towards robust standards, with greater emphasis on Scope 3 emissions and supply chain transparency. Investors demand measurable progress, and companies delivering on these expectations are rewarded with stronger valuations and brand recognition.

Our Sustainable Opportunities Strategy, recognised at the 2026 Professional Adviser Awards, integrates ESG factors across asset classes and uses Sustainable Development Goals (SDGs) revenue alignment to select assets. We focus on businesses delivering tangible outcomes across five investment themes: clean energy, food, health and wellbeing, resource efficiency, and water. This approach positions portfolios to capture structural growth while favouring well-managed businesses.

Given policy uncertainty and geopolitical risks, we maintain exposure to defensive sectors such as insurance and utilities, offering predictable cash flows and resilience against macro shocks. At the same time, we remain modestly overweight in equities and government bonds, focusing on quality stocks and secular themes like AI and energy transition. Diversification across geographies and sectors is critical, with structural reforms and fiscal expansions improving earnings prospects in Europe and Japan, narrowing the gap with US markets.

Conclusion

The outlook for 2026 is one of cautious optimism. While macroeconomic uncertainty persists, opportunities abound for investors who combine resilience with forward-looking themes. Sustainability gives us a repeatable and robust framework for long-term value creation. By integrating ESG and sustainability considerations holistically and aligning portfolios with structural growth drivers such as AI and energy transition, investors can deliver both financial returns and positive impact.