2. Banks will ramp up financing for liquefied natural gas projects
The world’s largest banks provide important financing to fossil-fuel and renewable-energy companies through loans and underwriting services. As a major source of capital for the oil and gas industry, banks are under pressure from climate action groups to phase out their financing of fossil fuels.
Initial data show that banks reduced fossil fuel financing by about 25% in the first seven months of 2025 compared with the same period a year earlier. The current oil supply glut has dampened new drilling and reduced capital demand, particularly in the United States.
Nevertheless, lending and underwriting to the fossil fuel industry are expected to grow next year, driven by the continued global expansion of liquefied natural gas (LNG) infrastructure. According to Paris-based Reclaim Finance, 279 new LNG projects are planned worldwide. If completed, these projects will produce enough gas to create more than 10 billion tonnes of carbon dioxide annually (or more than a quarter of all current energy-related emissions), “destroying any hope of achieving global climate goals,” Reclaim Finance says. The group estimates that global banks have already provided US$174 billion to LNG projects between 2021 and 2024.
The takeaway: With some exceptions, such as a possible new oil pipeline in Western Canada, demand for bank financing for oil companies and projects will weaken in 2026, as oil prices fall. But the massive expansion in LNG projects will continue to create demand for gas infrastructure financing. This will add pressure on banks from climate action groups and Indigenous communities to turn off the taps to the gas industry.
3. Renewable-energy and climate-transition industries will be a bright spot
As 2025 came to a close, stock markets grew increasingly jittery over prospects for the highly concentrated tech sector, especially the so-called Magnificent Seven stocks, which make up about 35% of the S&P 500 index. Concerns are growing that the colossal run-up in these stocks, driven by massive investments in data centers, is coming to an end.
The stocks (Apple, Microsoft, Nvidia, Amazon, Meta, Alphabet, and Tesla) were darlings of conventional investment portfolios in 2023 and 2024. Many broad-based sustainable portfolios with ESG screens also held them, based on neutral-to-positive rankings across most environmental and social issues.
Popularity among ESG investors began to cool in 2023, after the introduction of ChatGPT raised concerns about the massive energy demands of AI data centres and other environmental issues, such as water use. There are also growing concerns about social media’s role in shaping political views among many groups, including young men.
Now, some conventional analysts are suggesting that investors should take their profits from the Magnificent Seven and rotate into other sectors such as energy and industrial stocks. For sustainable investors, this could be a good time to buy shares in clean-energy companies, which outperformed both tech and oil in 2025, as well as climate-transition industries.
Examples of such companies can be found in the Morningstar Sustainalytics 21-company climate transition list. The names include Italian utility Enel, electrical component manufacturer Schneider, Norwegian aluminum and energy producer Norsk Hydro, industrial gas manufacturer Air Liquide, and wind power systems company Vestas.
The takeaway: Look for continued strength in renewable-energy stocks in 2026, as well as surprise breakouts in industrial and basic materials companies with strong carbon-emissions policies and product lines that will benefit from the climate transition.
4. European sustainable fund turmoil will come to an end
Europe, where about 85% of the world’s sustainable fund assets are located, has been embroiled in a year-long controversy over how its sustainable funds should be named or described to investors. Morningstar estimates that more than 1,500 funds with a combined value of more than US$1 trillion, or 28% of Europe’s sustainable funds, have been renamed since the beginning of 2024. More than 700 of these were renamed in 2025.
The key issue is a new set of rules requiring funds with environmental terms in their names to exclude fossil fuel holdings and ensure that at least 80% of their portfolio meets environmental goals. Funds that use a “sustainable” name must demonstrate meaningful holdings in sustainable assets. The rules were established by the European Securities and Markets Authority (ESMA) with a May 2025 compliance deadline.
Most funds that changed their names dropped the terms “sustainable,” “ESG,” or “responsible” from their labels but didn’t change their objectives or strategies. The controversy has created confusion among investors and reinforced suspicions of greenwashing.
In November, the European Commission proposed amendments to its Sustainable Finance Disclosure Regulation (SFDR) to further clarify the naming rules for sustainable funds. Going forward, funds will be classified into three categories: sustainable, transition, and ESG basics.The Institutional Investors Group on Climate Change welcomed most of the changes, saying they are useful tools for fund transparency. However, IIGCC also said that a streamlined list of mandatory criteria for assessing assets could help to promote greater comparability between funds. The package will now go to the European Council and Parliament for final approval.
The takeaway: Now that the ESMA renaming controversy has eased, European fund managers and advisers have a clearer framework for explaining differences in sustainable fund approaches. And while the new SFDR rules won’t be finalized until 2027, fund companies and advisers can immediately discuss investments with their clients using the new framework, suggesting options for clients concerned about issues such as fossil fuel holdings in ESG funds.
5. Canadian pipeline plans won’t find private investors
A controversy over sustainable investment is brewing in Canada over the recent agreement between Prime Minister Mark Carney and Alberta Premier Danielle Smith to pursue a new pipeline to ship oil-sands bitumen to the West Coast. Almost immediately after the November announcement, industry experts and critics said the pipeline is not feasible because there is no private-sector proponent, required Indigenous approval is unlikely, and the British Columbia government opposes lifting a West Coast tanker ban.
What few people have discussed is that it is unlikely that a major bank, consortium, or equity investor will come forward. There is no official cost estimate for the project. However, based on other recent pipelines, it would likely be in the tens of billions of dollars, a cost too high to be recovered through oil transit tolls, according to the International Institute for Sustainable Development. Investment analysts have expressed skepticism that the pipeline will receive private-sector support.
Even if the pipeline’s economic model worked, any bank or consortium of lenders or equity investors would be hesitant to back the project. One of the last major pipelines constructed in Canada – Coast GasLink – triggered multi-year vocal protests at RBC, one of its lenders. Given the high-profile nature of the West Coast oil pipeline, similar protests could be expected at any bank or equity investor supporting the project.The project is also unlikely to fall within the green or transition “taxonomy” guidelines to be developed starting in 2026, which will govern which Canadian investment activities will be officially labelled as sustainable. Development of the guidelines will be led by the Canadian Climate Institute think tank and Business Future Pathways, a coalition headed by a who’s who of sustainable-investment champions and representatives of climate action NGOs. Even if oil shipped through the pipeline is produced with lower per-barrel process emissions than present oil-sands oil, it will be tough for the new group to give such an investment a transition label, given the high level of Scope 3 or end-use emissions it will facilitate. It’s highly unlikely that banks or equity investors will be able to proclaim investment in the pipeline as a transition investment.
The takeaway: The lack of a pipeline company or group of companies to champion the project in 2026 will keep banks and equity investors on the sidelines. Given the longstanding oil supply glut, there will be little progress on the project in the coming year despite ongoing political support from Ottawa and Alberta.
The Big Picture
The Trump administration is ramping up its attacks on sustainable finance and ESG and its support for fossil fuels. This has given oil and LNG proponents hope that the financial community will back an expansion of conventional energy. The economics of alternative energy sources suggest that renewables should win out, but this is not a sure thing. What’s known is that inexpensive green energy and climate-friendly manufacturing are moving ahead. The crusade against ESG will continue for a few more years, but it won’t stop the smart money from supporting the industries of the future.
Article by Eugene Ellmen, who writes on sustainable business and finance. He is a former executive director of the Canadian Social Investment Organization (now the Responsible Investment Association). Find out more information on Corporate Knights here.
