ESG progress plateaus as private markets lag on stewardship and climate risk, XPS finds

ESG progress plateaus as private markets lag on stewardship and climate risk, XPS finds

04 Nov 2026

• 40% of funds were rated Green overall, compared with 43% in 2025
• 17% were unable to provide a single example of ESG factors within an investment decision
• 22% of private market funds were rated Red for stewardship, compared with 3% in listed markets
• 56% of private market funds reviewed do not undertake climate stress testing
   

XPS Group's sixth annual Investment Fund ESG Rating Review finds that overall ESG progress has plateaued, with fewer than half of investment funds receiving a Green overall ESG rating. Managers are showing stronger evidence of incorporating ESG into investment decisions, but stewardship and climate-risk management in private markets continue to lag listed markets.

The new review analysed 146 funds from 40 investment managers across nine asset classes, rating them Green, Amber or Red based on five key criteria: Philosophy (firm-level commitment), Integration (embedding ESG into decisions), Climate Change (specific climate risk management), Stewardship (engagement and voting), and Reporting. This year’s review was a deeper dive into the private markets, given the growing interest in this segment of the market from pension and insurance capital.

Industry as a whole plateaus, with mixed progress among investment managers

Overall, 40% of funds were rated Green, compared with 43% in 2025 and 40% in 2024. Meanwhile firm-level commitments continued to weaken, with the proportion of funds with Green ratings on this particular criterion declining for the third consecutive year. Despite this, the review found the highest proportion of funds ever rated Green for Integration, indicating that ESG considerations are more successfully feeding into day-to-day investment decisions for managers. A sign the industry is promising less but delivering more.

However, 17% of funds were still unable to provide a single example of ESG factors influencing an investment decision. Although this was down from 26% in 2025, XPS urges investors to review their managers to ensure ESG risks are being appropriately considered.

Private markets require closer scrutiny

For the private markets segment specifically, Green Integration ratings for those funds increased overall. However, 41% of private market funds could not demonstrate ESG integration in practice, with weaker evidence particularly apparent among funds in run-off.

Stewardship in private markets lags behind that of listed markets: 22% private market funds were rated Red for Stewardship, compared with 3% in listed markets.

Climate-risk practices also varied. While 77% of private-market managers could adequately report carbon data, this is much lower coverage than seen in listed markets (99%). Furthermore, 56% did not undertake climate stress testing, while 31% reported that they do not account for physical or transition climate risks.

Alex Quant, Head of ESG Research at XPS Group said: “Private markets are attracting growing allocations from pension schemes and insurers, making robust ESG oversight increasingly important. Investors should not assume that ESG risks are being managed consistently throughout a fund’s life. Stewardship, climate analysis and active monitoring, particularly in run-off funds, need much greater attention.

“Investors should regularly review managers, agree stewardship priorities and assess preparedness for the growing physical risks of climate change.”

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