[SPONSORED CONTENT]
As we enter 2026 following a year of increased polarisation for sustainable finance, the responsible investment landscape continues to evolve and recalibrate. Global economic pressures, political polarisation, and urgent climate realities mean that there’s a growing focus on re-emphasising the commercial drivers and financial materiality of responsible investing.
Demonstrating how responsible investment strategies can enhance portfolio resilience, drive sustainable growth and align with beneficiaries’ long-term interests remains important and will underpin key messages across the year.
Against this backdrop, the role of asset owners, the implementation of transition plans, adaptation finance, innovation driven by artificial intelligence (AI), and the shift towards private markets are set to define sustainability strategies in the year ahead. Supporting clients to understand the relevance of these issues and how they shape investment risks and opportunities will be vital.
The role of asset owners: driving systemic change
Asset owners have been recognised as pivotal forces in shaping responsible investment. Their ability to set clear expectations for asset managers and investee companies, and influence best practice across the wider industry, helps drive systemic change.
This is particularly important in an increasingly polarised policy environment. In 2026, asset owners are leveraging their influence to focus on systems’ level real world outcomes that deliver both financial value and societal benefit.
Climate change is a good example of a systems-level risk that impacts investment risks and opportunities across regions and sectors. Clear policy incentives are required to drive real world decarbonisation and move beyond investors decarbonising their portfolios whilst global emissions are on the rise. As uncertainty persists in several markets, the stewardship and engagement activities led by asset owners are key to maintaining momentum and ensuring that responsible investment remains central to long-term value creation.
Transition plans: From commitment to implementation
Transition plans have become a cornerstone of corporate and investor sustainability strategies, as stakeholders demand tangible progress on climate and sustainability goals. We published our own transition plan in 2025. It sets out the nitty-gritty of implementation actions to deliver on the commitments we’ve made to decarbonise our investment portfolios and achieve net zero.
Working with industry leaders like Robeco and leveraging their climate alignment framework is helping us identify climate transition leaders and laggards, enabling us to better target investment and engagement priorities. The transition comes with investment and growth opportunities. For example, progress on renewables has been significant. In 2024, renewables saw a record annual capacity growth of 15.1%1, and 25.4% of all energy used in the EU came from renewable sources that year. Despite that growth, emissions are still rising, and we believe that it’s unlikely that 2026 will see them peak given the continuously increasing energy demand and insufficient climate policy incentives across the globe.
Scrutinising the credibility of transition plans, assessing interim targets, and monitoring real-world outcomes remains critical to developing more resilient portfolios.
Adaptation and physical risks: Responding to a changing climate
Investors are recognising that mitigation of climate change alone isn’t enough, particularly as emissions continue to rise. The Intergovernmental Panel on Climate Change has warned of the growing frequency and severity of physical climate risks. For extreme weather events, such as flooding and drought, 10-year events would be 1.5x and 2.0x more likely to occur if temperatures rise to 1.5°C3. Any further temperature rises would increase the likelihood of these risk events further. This comes with financial implications and challenges of insuring assets at risk. That’s why understanding exposure and building resilience within portfolios and the wider economy is an urgent priority.
This is driving demand for adaptation finance, with capital flowing into sectors and projects that enhance climate resilience, such as sustainable infrastructure, agriculture and water management. The UN’s most recent estimate is that the cost of adaptation finance in developing countries will be some US$310 billion in 20354, with merely a tenth of that likely to be met by public finance, there is significant opportunity for private finance to bridge the gap.
Pensions and private markets: Infrastructure, natural capital, and societal impact
2026 is likely to see pension portfolios increase their exposure to private markets. Private market investments provide opportunities to support enhanced innovation and societal impact and the potential for better customer outcomes. Infrastructure projects – ranging from renewable energy to climate-resilient transport – play a critical role in the transition to a low-carbon economy and in enhancing community resilience. Meanwhile, natural capital investments, such as sustainable forestry and agriculture, are gaining traction as the range of investment opportunities widens and nature-related disclosure frameworks become more widely adopted.
The launch of our private market investments through our Lifetime Investment proposition helps us leverage these opportunities, with benefits ranging from longer time horizons to greater ability to influence directly and an enhanced focus on innovation and impact.
AI and innovation: Governance and sustainability solutions
Artificial intelligence is transforming the responsible investment landscape, offering new opportunities and challenges. On the one hand, AI-powered tools are enabling more sophisticated analysis of environmental, social, and governance (ESG) data, improving risk management and identifying sustainability opportunities at scale. On the other, the proliferation of AI underscores the importance of robust governance frameworks to address ethical, legal, and operational risks. Our 2025 AI report encapsulates these issues, underpinning the importance of transparent, accountable AI governance and leveraging technology responsibly to drive sustainability outcomes.
While these are our five ones to watch for 2026, other long-running themes, including the importance of social issues such as inequality, gender parity, and good governance continue to be important priorities. In 2026, responsible investment will be characterised by a pragmatic focus on opportunities and outcomes, with asset owners leading the charge for systemic change.
The implementation of credible transition plans, a growing emphasis on adaptation finance, and the integration of AI in governance and sustainability are reshaping the investment landscape. At the same time, the move towards private markets is opening new avenues for societal impact and portfolio resilience. Staying abreast of these trends, embracing innovation, and maintaining a clear-eyed focus on financial and societal value will be essential to delivering good outcomes in the years ahead.
Read the latest news, expertise and thought leadership from Scottish Widows’ workplace pensions experts – here.
To read more articles from Scottish Widows, visit our content hub on Corporate Adviser.
____________________________________________________________________
1 ‘Record-Breaking Annual Growth in Renewable Power Capacity’, International Renewable Energy Agency, 26 March 2025. Record-Breaking Annual Growth in Renewable Power Capacity.
2 ‘Share of energy consumption from renewable sources in Europe’, European Environment Agency, 6 November 2025. Share of energy consumption from renewable sources in Europe | Indicators | European Environment Agency (EEA).
3 ‘Climate change in data. Climate Change 2021: The Physical Science Basis’, IPCC 2021. Climate Change in Data: The Physical Science Basis
4 ‘Adaptation Gap Report 2025’, UN Environment Programme, 29 October 2025. Adaptation Gap Report 2025 | UNEP – UN Environment Programme