MainStreet Partners Barometer Reveals ESG Quality Gaps in European Funds

MainStreet Partners’ 2026 ESG and Sustainability Barometer finds that 25% of Article 8 funds and 30% of Article 9 funds fail to meet minimum ESG quality thresholds, in a market marked by stricter standards and increasing regulatory scrutiny.

Only 14% of European and UK funds would currently qualify as “Sustainable” according to the future SFDR 2.0, while approximately 25% of Article 8 funds and 30% of Article 9 funds do not meet the minimum ESG quality thresholds expected by the market. This is one of the most significant findings emerging from the fifth edition of the ESG and Sustainability Barometer by MainStreet Partners, one of the most comprehensive reports on the state of sustainability in European and UK public investment funds.

The 2026 Barometer captures a rapidly transforming sector, driven by aggressive regulatory enforcement, increasing scrutiny of ESG disclosures, and a markedly raising the bar for products aspiring to qualify as sustainable. The analysis is based on an extremely large sample—over 10,600 funds managed by nearly 500 asset managers —and offers a comprehensive view of the evolution of ESG practices in public fund markets.

MainStreet Partners ESG Barometer Results

One of the MainStreet Partners Barometer’s key findings concerns the regulatory environment, which has proven more dynamic and fragmented than the market had anticipated. As Sophie Meatyard, Head of Fund Research at MainStreet Partners , points out, expectations of stability in 2025 have not materialized: “ESMA’s guidance on fund nomenclature, the UK’s SDR regime, and the announcement of SFDR 2.0 have overall intensified the level of analysis and raised transparency standards.”

ESMA guidelines, the implementation of Sustainability Disclosure Requirements in the UK, and the evolution of the SFDR regulation are profoundly impacting fund managers’ decisions, requiring increasingly stringent consistency between fund names, investment strategies, and declared sustainability objectives. Sustainability is no longer a compelling narrative, but a structural element that must be demonstrated throughout the entire investment process.

In this context, the issue of greenwashing remains central. Despite signs of improvement in formal compliance, the phenomenon persists. Approximately a quarter of Article 8 funds score below 3.0 out of 5, the minimum threshold for ESG Assessed qualification . The data for Article 9 funds is even more significant: 30 % do not reach the 4.0 score required to be considered Sustainability Assessed, although only a minority fall below 3.5.

These numbers confirm that regulatory classification alone is no guarantee of ESG quality and that a significant portion of the offering presents nuanced and ambiguous sustainability profiles, where declared intentions do not always translate into actual integration of ESG criteria.

The analysis by asset class highlights marked heterogeneity in the levels of ESG integration. Among Article 9 funds, the European and Global Small- and Mid-Cap Equity strategies have the highest average valuations (4.7), along with the European Bonds (4.5) and Global Bonds (4.3) fixed income segments. Conversely, strategies such as Long-Short Equities and some Asian asset classes have lower levels (around 3.3), penalized by the complexity of the strategies and the lower quality and availability of ESG data.

Among Article 8 funds, Global Large Cap Equities , Thematic Healthcare funds , and European Large Cap Equities have the highest average valuations (3.5-3.6), while segments such as Money Market have lower valuations.

The Barometer highlights a growing polarization in ESG integration approaches . Approximately 33% of funds continue to adopt negative screening strategies , based on the exclusion of controversial sectors such as weapons and tobacco from their portfolios. This model is geared towards risk mitigation and ethical compliance, but rarely translates into an effective contribution to the sustainable transition.

At the other end of the spectrum are sustainable and thematic strategies , which focus on biodiversity, the circular economy, inclusiveness, and the energy transition. These funds explicitly aim to direct capital towards sustainable solutions and, unsurprisingly, have higher average ratings. The distinction between active and passive management is also significant: ETFs and index funds tend to favor best-in-class or optimization approaches, while active funds make greater use of qualitative assessments and targeted thematic allocations.

The data confirms this differentiation: Impact funds on average exceed a score of 4.5, while Engagement or Mixed strategies generally remain below 4.0 , signaling that not all “sustainable” labels express the same ability to generate ESG value.

Another trend highlighted by the Barometer is the progressive decline in average asset manager ratings . Far from indicating a deterioration in ESG practices, this trend reflects rising assessment standards, geographical divergences in ESG expectations, and the expansion of the universe of managers analyzed.

The entry of new operators, often with lower ESG maturity, has lowered overall averages, while tightening requirements for dedicated resources, institutional credibility, and governance make it more difficult for even established managers to maintain high scores. Top-rated asset managers such as Lombard Odier, Robeco, Triodos, Sycomore, and Mirova demonstrate that high scores require not only well-structured funds, but also an approach to sustainability rooted in the organization and corporate culture.

On the supply side, the MainStreet Partners Barometer highlights persistent heterogeneity in sustainable funds. Environmental strategies dominate the market, with over €75 billion under management across 110 funds, while social strategies account for approximately €17 billion across 38 funds. Despite their lower penetration, social funds have a high average rating (4.3 out of 5), in line with environmental funds. Their low penetration is therefore attributable to the lack of a formalized social taxonomy and a greater reliance on qualitative data, which makes product structuring and evaluation more complex.

From a regulatory perspective, the introduction of SFDR 2.0 will significantly reshape the market. According to MainStreet Partners’ simulations, the reclassification of funds into ESG Basics, Transition, and Sustainable will result in approximately 67% of funds falling into the ESG Basics category, 19% into Transition, and only 14% into Sustainable. This confirms how sustainability is increasingly becoming a selective choice rather than a generalized label.

The ESG revolution in private markets

The 2026 Barometer also devotes considerable attention to private markets , which are increasingly central to institutional portfolios and are under increasing regulatory scrutiny. Private assets are expected to reach approximately $26 trillion globally by 2030. At the same time, 94% of managers say they have already invested or plan to invest in private markets, while 86% of General Partners report growing client pressure for structured ESG practices.

MainStreet Partners evaluates these markets with a “Full-Cycle” model , which considers the entire investment cycle: from the asset manager’s governance and ESG expertise, to the integration of ESG criteria in initial screening and acquisitions, to additionality , i.e., the tangible impact generated by investment decisions. Ultimately, an effective ESG assessment requires a deeper understanding of how processes are implemented throughout the investment cycle, how commitments translate into concrete actions, and how managers use their influence to drive improvements over time.

Thematic Trends

One of the most significant contributions of the MainsTreet Partners 2026 Barometer emerges in the section dedicated to thematic trends , where the focus shifts from risk mitigation alone to climate adaptation . Global emissions reached an all-time high of 56.4 gigatonnes of CO₂ equivalent in 2024, while the remaining carbon budget to limit warming to 1.5°C has shrunk to approximately 130 Gt. If emissions continue at current levels, the threshold could be exceeded within a few years.

In this scenario, adaptation is no longer a marginal issue, but a new strategic axis for sustainable investments. Approximately 20–40% of the world’s population already lives in regions that have experienced seasonal warming exceeding 1.5°C , with growing impacts on health, food security, and economic stability. The Barometer highlights how ESG must evolve from a risk reduction tool to a lever for directing capital towards resilience solutions.

The topic of climate adaptation is intertwined with the analysis of emerging and frontier markets. Through indicators such as the ND-GAIN Index , MainStreet Partners shows how many emerging countries exhibit high climate vulnerability, but very different levels of adaptive capacity . Within this framework, some markets are showing signs of structural improvement: India and Vietnam , for example, have narrowed their adaptation gap in recent years, alongside an increase in companies adopting scientifically validated climate targets.

These dynamics, however, are not fully captured by market indices, which reflect the current market structure based on country capitalization and size, providing a static snapshot of climate risk. In contrast, active funds with ESG integration demonstrate a greater ability to select improving countries and sectors, while also delivering superior cumulative returns over three- and five-year horizons. It is in this sense that ESG emerges as a risk and return selection tool, rather than simply an ethical filter.

Among the most controversial topics addressed by the Barometer is the sustainability of the defense sector. Historically excluded from ESG considerations for ethical reasons, the sector has returned to the forefront of debate due to geopolitical instability and the dual-use nature of many technologies. The report does not propose an ideological rehabilitation of the sector, but calls for a more rigorous and transparent analysis of trade-offs, distinguishing between automatic exclusion and ESG integration based on governance, end-use, and systemic impacts.

In conclusion, the 2026 ESG and Sustainability Barometer paints a picture of an increasingly mature and selective sustainability market, where regulatory tightening, the emergence of new investment themes, and growing attention to process quality are redefining ESG as a structural element of financial analysis.

Looking ahead to 2026, the regulatory environment should enter a relatively more stable phase: following the announcements made at the end of 2025, particularly regarding SFDR 2.0, attention will shift primarily to the implementation of the new rules and their concrete application, rather than further disruptive interventions, strengthening the focus on transparency, data, and the credibility of ESG strategies.

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(Featured image by Towfiqu barbhuiya via Unsplash)

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