25 Feb 2026 - The rise of grounded sustainability and why it's here to stay

In the five years since the Glasgow-based COP26, sustainable investment initially surged. Expectations were high, pledges were ambitious, and many believed capital markets could play a decisive role in addressing climate change and broader environmental and social challenges. But more recently, geopolitical shocks, legal scrutiny and market realities have tempered that optimism. 

In its place, a more durable approach is emerging, which we describe as grounded sustainability. It's a framework for incorporating sustainability factors into investment decisions, where those factors are financially material and aligned with client mandates. It's evidence-led and recognises inherent trade-offs. Importantly, it's clear about the limits of what investors and companies can achieve within the constraints of public policy. 

Mandates and market realities 

Over the past five years, conflicts, the global energy crisis, and the resurgence of populist politics have created a more fragmented, unpredictable and idiosyncratic environment. For example, coal use rose during the energy crisis, even as renewable deployment consistently exceeded expectations. This highlights the growing regional and thematic divergence. With this complex backdrop, sustainable investment must balance long-term systemic goals with the constraints imposed by mandates, markets and regulation. Ambition alone isn't enough. It must be combined with pragmatism. Importantly, it must also align with clients' financial objectives and constraints, otherwise commitments risk becoming empty promises - or worse, reputational liabilities.

A similar dynamic is playing out in collaborative industry groups like the Net Zero Asset Managers (NZAM) initiative. Initially, in the post-COP26 momentum, there was strong pressure to sign up to firm-wide climate targets. But as geopolitical and market realities set in, many asset managers found themselves unable to deliver on those commitments across all mandates. This wasn't a failure of ambition, but a mismatch between system-level objectives and mandate-level authority. The practical lesson is that real-world outcomes must align with the client promise. To be clear, where clients want outcome-led objectives, this should be reflected in mandates.

Climate law gets real: from global duties to corporate liability

Legal frameworks are catching up with climate ambition. The International Court of Justice's (ICJ) recent advisory opinion [1] clarifies that states have a legal duty to prevent environmental harm, including to the climate system. It also clarifies that a lack of regulation doesn't absolve other actors - whether companies, asset managers or investors - from managing foreseeable risks. This shifts climate accountability from voluntary action to legal risk.

However, it also raises a hard question: what happens when governments fail to act, or act too slowly? Can companies and investors be expected to fill the gap? In theory, both public and private actors share responsibility. But in practice, companies and investors operate within legal and commercial boundaries. In particular, asset managers' decisions are shaped by what clients ask for, legal responsibilities to act in clients' best interests, and market competition. Expecting companies or investors to sacrifice value by absorbing costs not required by law is difficult to justify - particularly in hard-to-abate sectors like steel or aviation. This challenge is heightened where government incentives can often support conflicting goals across energy security, affordability, and economic growth.

Policy as a catalyst 

This is where effective policy matters. Recent European initiatives to align climate objectives with industrial competitiveness and energy security reflect growing recognition that markets alone cannot deliver the transition at scale. Together, they signal a shift from fragmented initiatives to coordinated, state-backed action, while offering companies and investors the long-term policy clarity that has been missing. This is why we are calling for greater long-term policy certainty, which retains strategic intent while limiting unnecessary complexity.

This is the essence of grounded sustainability: integrating environmental and social factors when they are material to value, and doing so with clarity, discipline, and alignment to mandates.

What does this mean for investors?

Sustainability concerns need not be sidelined in financially focused mandates. Forward-looking considerations of material environmental and social risks are fully consistent with long-term value creation. What cannot be justified is pursuing sustainability outcomes that are disconnected from financial objectives, unless explicitly agreed with clients. This is the essence of grounded sustainability: integrating environmental and social factors when they are material to value, and doing so with clarity, discipline, and alignment to mandates.  Policy is the missing link. Without it, companies struggle to act without breaching fiduciary duties or losing market share. With it, sustainability themes become investable, scalable, and defensible.

Looking forward 

We expect that the rise of climate risks - coupled with increasing energy and mineral demands to facilitate technology advances and the energy transition - will mean that sustainability themes will remain at the heart of many geopolitical tensions. This will apply whether they are presented as energy transition, resilience or strategic government objectives (such as economic competitiveness or national security). Overall, we expect the policy landscape to remain uneven, with less support than previously. But where outcomes align with strategic government objectives, policy support will surely follow.

Final thoughts...

A recalibration is needed to find an equilibrium, where sustainability is seen as a fundamental tool for making better investment decisions, rather than being wrapped up in unrealistic expectations. The sector needs to evolve from idealism to pragmatism, grounded in legal clarity, mandate alignment and financial materiality. Despite the potentially gloomy outlook, we've seen record investment in the energy transition - twice as much as in fossil fuels. So it's not about abandoning sustainability themes. Rather, it's about doing it deliberately and within real-world constraints.