Five ESG trends for 2026

The past year was yet another eventful one for sustainability investors and the broader Environmental, Social and Governance (ESG) landscape. 2025 was marked by a succession of extreme weather events, a near-record global temperature average and significant international policy developments, including the EU’s Omnibus simplification package and further amendments to greenwashing claims under Canada’s Competition Act. Importantly, the average global temperature for the three-year period from 2023 to 2025 likely exceeded the 1.5°C threshold above pre-industrial levels for the first time – a milestone that underscores the growing urgency for governments, companies and investors to reassess how climate risks are managed and priced.

In this commentary, we highlight five ESG trends set to shape the year ahead, revealing both challenges and opportunities for investors and businesses alike.

1. From climate mitigation to climate survival

With the 1.5°C threshold now effectively behind us, the focus is shifting from climate mitigation alone to climate adaptation and resilience. Markets are increasingly pricing physical climate risks – from flooding and heat stress to water scarcity – into valuations, insurance costs and credit risk. At the policy level, governments are directing more capital toward adaptation priorities such as resilient infrastructure, water systems, food security and disaster preparedness, with several countries announcing a major increase in adaptation finance, aiming to triple it to $120 billion annually by 2035. For investors, exposure to climate resilience is becoming critical. We believe that companies enabling societies to withstand and adapt to physical climate impacts are likely to play an increasingly important role in long-term portfolios.

2. ESG returns to its financial roots

After surging in prominence during the pandemic years, ESG has faced political pushbacks and skepticism in parts of the market. This recalibration is now forcing a clearer definition of what ESG truly represents: financially material business issues. Labour practices, supply-chain resilience, governance failures and environmental liabilities matter because they can directly affect cash flows, valuations and license to operate – and indirectly shape the long-term sustainability of economic growth. In 2026, we believe ESG will be re-anchored to its original purpose: identifying risks and opportunities that are financially relevant to investors.

3. ESG integration is also becoming mainstream

ESG is no longer a niche strategy or a product label. Sustainability considerations are increasingly embedded across investment processes, from equity and credit analysis to portfolio construction and risk management. In Canada alone, ESG integration is used by 96% of investors, representing 87% of AUM. Whether or not a fund is explicitly marketed as “ESG,” these factors are becoming part of standard due diligence, and therefore increasingly a core component of the investment infrastructure. We believe this trend will continue in the new year and accentuate in many markets around the world as countries like Japan, China and India are increasingly adopting ESG initiatives.

4. The redefinition of “responsible” capital

Energy security, defence, critical infrastructure and industrial resilience are being re-examined through an ESG lens. Investors are increasingly debating when exclusion gives way to responsibility, and whether financing defence capabilities, transition metals or strategic industries is incompatible with – or essential to – long-term sustainability. This shift reflects a more pragmatic approach to ESG, recognizing that social stability, security and resilient supply chains are foundational to sustainable development. We believe that 2026 will be marked by further discussions and guidance around how to invest responsibly in previously deemed harmful sectors, with workgroups such as the Principles for Responsible Defence Investment (PRDI) initiative.

5. AI and data-driven ESG analysis

Artificial intelligence (AI) and advanced data analytics are transforming how most sectors operate. ESG is no different. From climate modelling and supply-chain monitoring to controversy detection and impact measurement, AI is enabling more timely, granular and forward-looking ESG analysis. The competitive edge is moving away from simply having ESG data toward better understanding of the data, as well as interpreting signals faster and more effectively than the market. As AI capabilities continue to advance, we believe ESG will increasingly become more dynamic, data-driven and integral to enhance risk management, uncover emerging opportunities and improve long-term investment decision-making.

Final thoughts

At Global Alpha, it’s never been about chasing ESG trends, but remaining disciplined and consistent in our investment processes. ESG has always been about financial risk mitigation and long-term value creation – doing what is right for our clients by identifying material risks and opportunities in a rapidly changing world. From climate resilience and supply-chain stability to governance quality and data-driven analysis, ESG considerations have long been embedded in how we assess risk and opportunity across portfolios.

As the ESG landscape continues to evolve, our philosophy remains unchanged: identifying and managing material risks, while allocating capital to businesses positioned to create durable value in a rapidly changing world.