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Despite the challenges, UK sustainable investment manager EdenTree declared that in 2026 it is committed to investing in businesses that deliver positive outcomes for people and the planet.
Sustainable investment manager EdenTree declared 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 notifys us these backlashes are cyclical,
and we remain resolute in our believeing,” the firm declared in a
statement.
EdenTree believes that climate alter 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 declared. “We believe that younger investors,
in particular, will drive part of this re-emergence through their
engagement with issues such as climate alter and social
inequality, meaning that EdenTree’s long-term story remains very
much alive.”
Energy transition
Like other wealth managers, the firm believes 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 huge 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
innotifyigence (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 declared, the firm believes 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 display 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 declared.
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 indusattempt 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, declared.
The firm declared 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 trconclude 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 conclude, the funds
landscape will be clearer, with naming and marketing far more
reflective of underlying investments – a positive
development for investors, the firm declared.
With rules, disclosures and frameworks now embedded, EdenTree
expects to see the conversation evolve beyond labels, seeing
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 alter,
diversity and other critical issues.
Global environmental and social challenges haven’t gone away; if
anything, they’re obtainting 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 altering and increasingly
complex geopolitical environment,” the firm declared.
“I expect economic growth will be the hugegest 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 launchning 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 trconcludeing lower, creating the
potential for a more supportive economic environment later in the
year which could support a broader recovery in the second half
of 2026, the firm declared.
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 outsee 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 tiny and mid
caps, will ensure that it is positioned to capture that
inflection point.
Fixed income
David Katimbo-Mugwanya, head of resolveed income, declared the strategy
for the year is to remain selective and flexible. He favours
shorter to intermediate maturities, and believes 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 shiftments 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 innotifyigence 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 declared.
The first hurdle for employing AI is power. Even in tech
hubs such as California, data centres are sitting idle
becaapply 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 rapider chips, due to the scarcity of high-quality
training data.
While AI captures headlines, the firm is watching the US houtilizing
market, as it believes the stage is being quietly set for a
recovery here. After a period of negativity about houtilizing
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 conclude the year at
around 3 per cent. That declared, 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,
building 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 houtilizing 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 creates 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. “As we shift into 2026, we maintain a
positive outsee 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 declared.
