Sustainable finance continues to develop within an unstable political and economic environment. In 2026, more than ever, it lies at the intersection of financial, environmental and geopolitical challenges, and is evolving in step with the complex interactions between stakeholders, regulatory frameworks and market dynamics. We had the opportunity to speak with Charline Meslé, Head of ESG and Climate at Morningstar Sustainalytics, to better understand the trajectory of the sustainable investment market.
2025 marked a major turning point in financial players’ discourse on sustainability, following on from the widely publicised “ESG backlash” of recent years. “In practice, we are seeing a shift from rhetoric historically based on ‘moral values’ towards a discourse now centred on financial materiality,” explains Charline Meslé.
In communications from financial players, the integration of ESG criteria is increasingly presented as an operational tool serving pragmatic objectives: ensuring energy security, guaranteeing the resilience of value chains and access to raw materials, and identifying new growth opportunities. This shift is reflected in particular in the success of fundraising for products dedicated to climate change adaptation and the energy transition.
Meslé analyses: “Beyond a mere recalibration of the rhetoric, this shift above all reflects a strategic transformation of ESG approaches.” Indeed, despite the political noise, the integration of sustainability factors is strengthening structurally: “Across all markets, few investors are actually abandoning ESG, even if this phenomenon does exist, particularly in the United States. Conversely, they tend to refine their exclusion policies, strengthen shareholder engagement and mainstream the integration of ESG considerations into their investment processes, in a more discreet but systematic manner.”
The objective is twofold. It is to limit the loss of mandates from institutional investors, particularly European ones, as has been observed on several occasions in recent months. From a strictly financial perspective, these measures also aim to strengthen the management of climate and nature-related risks, which have been the cause of significant financial losses in recent financial years.
Since the SFDR came into force in 2021, the European Union has established itself as a global pioneer in the regulation of sustainable finance. The European investment market has undergone rapid restructuring around the three fund categories introduced by the SFDR: Article 6, Article 8 and Article 9, with Articles 8 and 9 alone accounting for nearly 60% of the total offering.
In 2025, the European Union clarified its ambition to strengthen the credibility of the sustainable investment market. An initial regulation governing the use of sustainability-related terms in the names of financial products led 31% of the funds concerned to remove the terms ‘ESG’ or ‘Sustainable’ from their names. The revision of the SFDR, announced at the end of 2025, aims to build on this momentum.
With the introduction of mandatory exclusions and stricter guidelines for investments eligible under various sustainability objectives, this overhaul aims to further structure the sustainable investment landscape. Morningstar therefore anticipates a second reduction in the scope of funds classified as sustainable, with clearer guidelines for investment messaging and decisions.
Whilst ESG is now becoming increasingly embedded in Europe, this trend is also spreading globally. “Financial players are gradually embracing sustainability issues and new regulatory frameworks are emerging. In Asia in particular, several countries are developing their own taxonomies and approaches, with a growing emphasis on double materiality, particularly in China. The SFDR has led the way in Europe; we are now seeing an acceleration on a global scale”, concludes the Head of ESG and Climate.
At the same time, Charline Meslé notes that a growing disconnect is emerging between companies’ actual actions and their public statements: actions are continuing or even intensifying, but public communication about them is becoming increasingly scarce. This phenomenon of “greenhushing” (the act of downplaying or remaining silent about ESG initiatives) can create the illusion of a retreat from commitments.
She explains: “This disconnect stems mainly from two fears. Firstly, the fear of exposing oneself to political backlash. This political backlash manifests as increased polarisation of the debate and pressure on companies accused of promoting agendas perceived as ideological. Secondly, the growing legal risk. As sustainability reports are now audited, any imperfect data or unfulfilled promises can expose the company to direct litigation, with potentially significant reputational and financial consequences.”
The paradoxical impact of the CSRD coming into force in Europe illustrates this phenomenon well: “Contrary to initial expectations, the first wave of CSRD reporting has in some cases led to a reduction in the scope of the information published.” In order to comply strictly with regulatory requirements, some companies have refocused on their material issues, excluding from their annual reports ESG information deemed non-material to their activities.
‘Financial players are addressing sustainability issues in a more low-key but more systematic manner.’
In terms of data, the ESG and Climate Director identifies two types of challenges: These revolve around five main themes:
A key topic in 2025, the issue of corporate transition now occupies a prominent place in many investment strategies, sustainable finance labels (FNG-Siegel, LuxFLAG, SRI) and regulatory frameworks. Transition plans have gradually become a key criterion for assessing the credibility of companies’ climate commitments.
“Despite these challenges, the market still suffers from a lack of robust data to assess the credibility of these plans,”observes Charline Meslé. She adds “Analysing transition plans requires in-depth sectoral and geographical expertise to assess the consistency between announced trajectories, operational realities and the constraints specific to each business.
In the absence of sufficiently robust data, there is a risk of seeing transition commitments that are difficult to compare across issuers, thereby exposing stakeholders to the risk of greenwashing.”
Physical risk is a central and widely recognised challenge, the effects of which are increasingly visible in companies’ financial results (business interruptions, supply chain pressures, asset degradation). According to Charline Meslé: “Financial stakeholders now rely on increasingly granular data, often asset-based, describing each physical asset individually (factory, head office, warehouse), rather than aggregating information at the company level.”
She notes: “There is still a lack of a robust link between the physical risk to which an asset is exposed and the ultimate losses incurred by its parent company.” Current solutions do not sufficiently distinguish between the nature and utility of the asset: “For example, a head office (which can be easily relocated) is often treated as a production site (critical and immobile), which distorts the risk analysis.”
Another facet of climate risk management is developing in parallel: adaptation to climate change. Charline Meslé explains: “If the Paris Agreement targets are not met, physical risks (floods, fires, heatwaves) will automatically increase, making adaptation a priority issue, sometimes even ahead of the transition. The challenge for investors will then be to identify the most resilient companies—those capable of adapting, or providing solutions that enable the economy to continue functioning.” According to Morningstar’s analysis, investments related to climate change adaptation are expected to triple by 2030. The fact that private sector players are now taking ownership of an issue historically driven by public authorities (the latter still accounting for 98% of funds dedicated to adaptation in 2024) reflects a growing awareness of the climate emergency. Faced with this growing need, the market remains ill-equipped: to date, fewer than 8% of companies publish data aligned with the adaptation criteria of the European Taxonomy.
In 2025, 63% of institutions now consider nature-related risk to be of the same severity as climate risk, according to the TNFD 2025 Status Report, cited by Charline Meslé. The importance of biodiversity is no longer a matter of debate in the market, and many financial actors are now developing risk management frameworks dedicated to this issue.
However, data remains highly fragmented and difficult for institutions to interpret, particularly when it comes to biodiversity footprints and geolocated data. There is still a lack of harmonised sector-specific indicators to assess nature-related financial risks and the materiality of impact, making it difficult to robustly integrate this information into investment models.
Charline Meslé also highlights a growing need among investors, particularly in the United States: access to ESG data tailored to the analysis of technology and artificial intelligence companies. “Investors are seeking, in particular, to better understand the energy and water consumption associated with data centres and model training, as well as the governance issues specific to these activities, such as cyber risks and algorithmic biases.”
However, the sector is largely dominated by young companies, which are often unlisted or still relatively immature when it comes to structured non-financial reporting. At this stage, it therefore remains difficult to rely on reliable and comparable reported data, which limits the consistent integration of these players into ESG analyses.
Finally, Charline Meslé confirms the shift in doctrine currently underway in Europe, marked by greater flexibility around the idea that sustainable investment and defence can coexist. She points out, however: “This distinction was not so pronounced in other regions. The desire to separate the defence industry from sustainable investment was a specifically European phenomenon, which, incidentally, did not enjoy unanimous support among institutional investors.” Historically excluded from many European ESG frameworks, the defence industry is thus undergoing a gradual reassessment in light of geopolitical, sovereignty and security issues.
Faced with the fragmentation of regulatory frameworks and the tightening of requirements for financial actors, the challenge is no longer merely one of compliance, but of structuring approaches capable of withstanding heterogeneous and evolving frameworks.
In this context, Charline Meslé points out that it is essential for investors to rely on global standards that are converging, such as the ISSB for financial materiality or the TNFD for nature-related issues. This convergence offers several benefits: enhancing the consistency of published analyses and reports, limiting the effects of fragmentation across jurisdictions, and drawing on more readily available and higher-quality data.
At the same time, the Head of ESG and Climate emphasises the need to continue and strengthen efforts to centralise and harmonise data: “The information reported by European, American and Asian companies is based on distinct frameworks; this work is therefore essential to make the data comparable and usable within investment processes.” ESG data providers such as Morningstar Sustainalytics, as well as players specialising in the management and orchestration of this data, such as WeeFin, can play a key role in centralising, harmonising and standardising information derived from heterogeneous mandatory reporting.
Beyond data and regulatory requirements, investors must also strengthen their internal expertise. Teams can no longer limit themselves to simply consuming ESG data: they must be able to explain the assumptions, methodologies and limitations of the data—whether reported or estimated—particularly when dealing with regulators. Thus, in 2025–2026, sustainable finance will enter a phase of standardisation: less rhetoric, more frameworks, more data, and a growing demand for consistency between stated commitments and investment decisions.
