From Clean Energy to Climate Risk: How Sustainability Is Reshaping Portfolios in 2026

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Priti Shokeen, PhD, Managing Director, Head of Sustainable Investment, TD Asset Management Inc.

Sustainable investing has rapidly moved from a niche strategy to a mainstream part of how many people build long-term financial security. For investors, the appeal is clear: sustainability-focused investing aims to recognize risks and opportunities that traditional analysis may overlook, while also reflecting the world we all live in. As we approach 2026, global events, shifting policies, new technologies, and evolving social priorities are reshaping what sustainable investing looks like, and what it means for investors.

At TD Asset Management Inc. (TDAM), our sustainable investing team has been monitoring these developments closely. Several key themes stand out as especially important for investors navigating today’s increasingly complex world.
 

A New Perspective on Defense in Sustainable Investing

For years, environmental, social, and governance (ESG) investing tended to avoid defense companies entirely. The association with armed conflict made the sector off-limits for many investors who wanted their portfolios to align with principles of peace and global well-being. But geopolitical realities over the past several years have forced a re-examination of this once-rigid stance.

Many countries now view defense as essential to national stability. Without basic security, social and environmental progress becomes much harder to achieve. As a result, some investors, including those focused on sustainability, are beginning to look more closely at defense firms that emphasize transparency, responsible practices, and technologies linked to protection and security rather than offensive tools. Investments connected to controversial weapons remain firmly off limits under most ESG frameworks, but the conversation around defense has undeniably evolved.

For investors, this shift highlights an important truth: sustainable investing is not static. It responds to the world around us, and sometimes that means reassessing long-held assumptions to ensure portfolios remain aligned with both values and real-world risks.
 

Clean Energy Accelerates While AI Drives New Demand

The global move toward clean energy has gained remarkable momentum. According to the International Energy Agency, roughly US$2.2 trillion¹ is now being invested annually in renewable power, nuclear energy, modernized electrical grids, battery storage, low-carbon fuels, and improved energy efficiency. This amount is about twice what the world currently invests in fossil fuel systems.

For investors, this transition carries profound implications. Companies leading the shift toward cleaner, more resilient energy systems may be better positioned for long-term growth as governments and consumers push for lower emissions and greater sustainability.

At the same time, the rapid rise of artificial intelligence (AI) is introducing new complexities. AI requires enormous amounts of electricity, far more than many people expect. As more businesses adopt AI and data-center demand skyrockets, the pressure on energy grids will increase significantly. To meet this demand, many experts believe the future will rely heavily on renewables and nuclear power — technologies capable of providing both clean and reliable energy at scale.

This intersection of clean energy expansion and AI-driven power consumption is reshaping the investment landscape and may influence which industries and companies thrive in the years ahead.
 

Climate Change Is Creating Immediate Financial Risks

Climate change is no longer viewed as a distant problem. Its financial impacts are increasingly visible and immediate. In 2024, natural disasters such as floods, wildfires, and hurricanes caused almost US$140 billion² in insured losses globally, a sobering sign of how costly climate-related events have become.

For investors, the question is not whether climate change affects markets, but how much and in what ways. Many companies are now being evaluated based on their physical exposure to climate risks and their ability to adapt. Investors and asset managers are relying more heavily on climate models and data tools that assess risks tied to specific locations, supply chains, or business operations.

Yet even as climate impacts create challenges, they also generate opportunities. Demand is rising for climate-resilient infrastructure, innovative adaptation technologies, and financial products such as catastrophe bonds that help manage extreme weather risks. Companies that help society adapt to climate change may become increasingly important components of long-term investment strategies.
 

Different Countries, Different Rules: Governance Is Splintering

Good governance has always been central to strong, sustainable long-term performance. But in today’s world, governance expectations are no longer consistent across countries. Rules around transparency, shareholder rights, climate disclosure, executive pay, and even the oversight of artificial intelligence are diverging among major markets.

For investors, this means that companies operating globally may face very different governance standards depending on where they do business. These differences can affect how well companies manage risks or respond to changing economic conditions. At TDAM, we devote significant effort to stewardship, including proxy voting and direct engagement with company leadership, to encourage higher accountability and governance practices that support long-term value.

As global regulatory environments fragment, active stewardship becomes even more important in helping protect the interests of individual investors.
 

Inequality Is Becoming a Financial Concern, Not Just a Social One

Income inequality has reached levels that many experts now view as a systemic risk. An Organisation for Economic Co-operation and Development (OECD) report from late 2025 revealed that 83% of countries are experiencing high income inequality, representing 90% of the global population³. This is not just a social challenge; it has real economic consequences.

When inequality grows, political tensions tend to rise, trust in institutions declines, and economies become more vulnerable to disruption. Consumer spending, which drives many sectors, can weaken as affordability challenges intensify. All of these factors influence corporate performance and broader market stability, making inequality an issue that investors should pay attention to.

But inequality also creates opportunities for businesses that develop solutions: companies expanding access to housing, education, financial services, and healthcare; companies supporting affordability or improving quality of life; and companies aligned with the United Nations Sustainable Development Goals (UNSDGs). For investors, these solution-driven themes may open avenues for long-term growth while also contributing to broader societal well-being.
 

Putting It All Together: Sustainability Continues to Evolve

Sustainable investing in 2026 reflects a world in transition — one where major shifts in climate, technology, governance, and social structures are constantly influencing market dynamics. For investors, embracing sustainable investing is not about chasing trends; it’s about understanding how long-term forces shape economic opportunity.

At TDAM, we continue refining our sustainable investing approach by integrating ESG insights into research, using scenario analysis to anticipate future risks, and practicing active stewardship to support responsible governance and long-term value creation. For investors, these efforts help ensure that sustainable investing remains a meaningful way to navigate an increasingly complex world — one where risks and opportunities are deeply interconnected and where long-term thinking matters more than ever.

Sustainable investing is ultimately about preparing for the future — not just reacting to it.