MainStreet Partners Limited has today released its 2026 ESG & Sustainability Barometer, the fifth edition of the firm’s flagship annual review of sustainability trends across the European and UK fund universe.
One of the key findings in the report is that while greenwashing risk is stabilising, it remains material with around 25% of Article 8 funds scoring below MainStreet’s 3.0 (out of 5.0) threshold for ‘ESG‑Assessed’, and 30% of Article 9 funds scoring below the 4.0 “Sustainability‑Assessed” threshold. However, only approximately 5% of Article 9 funds are rated below a 3.5.
ESG & Sustainability Barometer 2026 by MainStreet Partners
Sophie Meatyard, Head of Fund Research at MainStreet Partners, commented: “While greenwashing risk is stabilising, a meaningful proportion of funds still fall short of the standards investors may reasonably expect. With 5% of Article 9 funds rated below 3.5, many of these strategies demonstrate positive characteristics, but may require stronger implementation, clearer sustainability objectives, or more robust KPIs.”
MainStreet’s 2026 Barometer includes in depth ESG and Sustainability due diligence on over 1,600 funds, with ESG risk assessments on a further 9,000+ funds, managed by nearly 500 asset managers. It provides a comprehensive assessment of ESG and sustainability integration, drawing on MainStreet’s proprietary three‑pillar methodology which assesses the Asset Manager, the Investment Strategy, and the Portfolio.
Other key findings from the 2026 Barometer include:
· Asset Manager scores continue a multi‑year decline
Rising standards and regional divergences in ESG expectations have collectively pushed average Asset Manager ratings lower across all fund categories.
· Sustainable fund opportunity sets remain uneven
Environmental strategies continue to dominate the market, with more than €75bn in AUM across 110 funds, compared to just €17bn across 38 social funds. Although social funds average a strong 4.3/5.0 rating, comparable to environmental funds, the lack of a social taxonomy and more qualitative data inputs contribute to their underrepresentation.
· New regulation will reshape the fund universe
SFDR 2.0 introduces a stricter three‑category system (ESG Basics, Transition, Sustainable). Based on MainStreet’s analysis, 67% of existing funds would fall under ESG Basics, 19% under Transition, and only 14% under Sustainable, demonstrating the higher bar for the latter category.
The report also identifies how ESMA Naming Guidelines and the FCA’s SDR are influencing fund behaviour with the prevalence of naming‑related penalties falling from 7% to 4.6%, reflecting improved alignment between fund names and sustainability commitments.
Sophie Meatyard added: “Expectations for a calmer regulatory environment in 2025 did not materialise. Instead, ESMA Naming Guidelines, the UK’s SDR regime, and the announcement of SFDR 2.0 collectively sharpened scrutiny and raised the bar for transparency across the market. While our methodology continues to evolve in line with these developments while maintaining consistency for clients who rely on our ratings for portfolio construction, monitoring, and greenwashing risk management.”
Private Markets: The Next Frontier for ESG
The Barometer also spotlights the rapid rise of ESG integration in private markets, now central to institutional portfolios and increasingly subject to regulatory scrutiny. Global private market assets are projected to reach approximately $26 trillion by 2030, with 94% of asset managers either already investing or planning to invest in private market strategies. In addition, 86% of General Partners report growing client pressure to adopt more structured ESG frameworks. MainStreet has operated a dedicated ESG model for private assets since 2020, updated this year to align more closely with the liquid‑funds framework while accommodating the unique characteristics of private markets.
Sophie Meatyard added: “As private markets become embedded within long‑term savings products, the need for robust, evidence‑based ESG analysis is essential. Our evolved private assets model reflects the realities of data limitations while ensuring a credible, full‑cycle assessment of ESG integration and sustainability quality.”
Expanding the Understanding of Sustainability Trends
The report also explores three pivotal questions shaping the future of sustainable finance – the case for climate adaptation opportunities in frontier markets, whether defence has a place within sustainable investing frameworks and why environmental strategies continue to dominate despite strong social performance.
Looking Ahead, the report concludes that while 2026 is expected to be calmer from a regulatory standpoint, key developments—such as the EU ESG Ratings Regulation and changes to corporate reporting requirements under the EU Omnibus—will continue to influence how asset managers demonstrate, measure, and communicate sustainability performance.
