The Upside: Sustainable investing today: Trends shaping the market

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Hello, and welcome to The Upside.

 

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I'm your host, Catherine Thomas.

 

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In today's rapidly changing market sustainable investing can offer a

 

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way to balance resilience, growth, and long term value.

 

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More companies are prioritizing strong environmental and social

 

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practices in order to manage risk and capitalize on

 

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opportunities tied to innovation and efficiency.

 

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As investors navigate uncertainty sustainable investing could help them build

 

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more resilient and responsible portfolios.

 

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Joining me in studio to highlight key trends shaping sustainable investing is

 

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Julianna Martino, Manager, Corporate Sustainability.

 

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Welcome, Julianna.

 

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Hello, happy to be here.

 

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Thank you for coming. Let's just start off and chat about some key

 

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trends that are really shaping the sustainable investing world in 2026.

 

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I think it's a great way to start today's conversation.

 

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There are a few key trends that I'd like to highlight.

 

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I think the first is the energy transition continues to be a major

 

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and evolving theme globally.

 

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Despite policy uncertainty in certain markets we're still seeing meaningful

 

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investments into areas like renewables, grid modernization, and clean tech

 

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supply chains. On top of that, it's no longer just a climate discussion.

 

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We're seeing how it's being tied to areas like energy security and resilience,

 

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especially in today's geopolitical environment.

 

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Second, I'd say that technology, and specifically AI, is becoming

 

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more important. I think on one end AI is helping

 

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companies to better identify and manage their sustainability related risk and

 

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opportunities but it also introduces new considerations, like the

 

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rising energy demand from these AI-driven data centres.

 

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As asset managers we're focused on how companies are balancing innovation

 

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with factors like energy use, sound governance, and the

 

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responsible use of AI in their business.

 

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Lastly, I'd say the industry itself has matured.

 

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Today ESG, or the consideration for ESG, environmental,

 

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social, and governance, factors is a lot more integrated and mainstream than it

 

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was just a few years ago.

 

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In some cases I would say it's become table stakes.

 

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We're seeing how it's embedded into research, into portfolio construction, and

 

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also risk management. It's not just being viewed as a stand-alone

 

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label or add-on anymore.

 

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I like what you mentioned about it being more embedded in our culture and our

 

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day-to-day lives. I heard some themes about energy, tech, AI.

 

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How does Fidelity fit into this and what is Fidelity's approach to sustainable

 

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investing in 2026?

 

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When it comes to Fidelity's approach, really it's built on a core

 

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principle being that our priority is creating long term value for

 

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clients and sustainability is one of the ways in which we can do that,

 

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particularly where it is relevant and financially material for investors.

 

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There are a few elements to our approach.

 

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The first is ESG research.

 

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ESG factors are part of our investment research

 

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process. We consider these alongside traditional financial factors

 

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where they are material, and here we are using our proprietary ESG

 

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research and ratings alongside third-party insights.

 

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The second is investment stewardship which is important, so here engagement and

 

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proxy voting are part of our research process and this helps us to kind of

 

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have that ongoing dialogue with companies on these material issues at hand.

 

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Third is communication. We recognize that greenwashing is

 

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a cited concern in the industry and so we focus on being clear and

 

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transparent in our communication so that investors understand how

 

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sustainability is built into our products.

 

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Speaking of products, the fourth component here is sustainable investment

 

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solutions.

 

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We believe in providing clients with choice and meeting them where they're

 

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at. Depending on the investor, they have different goals, we offer

 

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broad range of sustainable investment solutions from our climate leadership

 

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suite, which is focused on investing in climate related opportunities across

 

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asset classes, to our Women's Leadership Fund, which is more focused on

 

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social and governance factors, to Sustainable World,

 

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which takes a broader ESG approach.

 

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Lastly is collaboration. We are signatories to the Principles for Responsible

 

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Investment and also members of the Responsible Investment Association.

 

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Being part of these organizations allows us to stay connected to evolving

 

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best practices and industry standards and also helps to inform maybe where

 

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we need to adjust our approach as these standards and as

 

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regulations evolve as well.

 

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I actually want to dive into more, you mentioned some investment solutions and,

 

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obviously, Fidelity's approach is ever evolving but we have five key

 

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sustainable investment solutions here at Fidelity.

 

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I want to dive into, you mention the Sustainable World ETF, can you talk a bit

 

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about that?

 

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Absolutely. The Fidelity Sustainable World ETF, ticker

 

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is FCSW, is a core global equity strategy and it is

 

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available in both an ETF and an ETF mutual fund.

 

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Here the strategy really has a dual objective.

 

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The first is that it uses what we call a best-in-class screening approach

 

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to identify companies with favourable ESG characteristics.

 

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Second is that it applies a proprietary quantitative model

 

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that looks at multiple factor inputs to identify companies with attractive

 

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fundamentals. Here the model is looking at factors like quality,

 

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growth, momentum, value, industry dynamics, and really it's

 

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designed to stay well diversified, avoid overly

 

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large bets into any one company, and then also move in

 

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line with the broad global market over time.

 

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It is benchmarked to the MSCI All Country World Index,

 

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or the MSCI ACWI. This is a broad global index and really here

 

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investors are able to evaluate how a sustainable type

 

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of product can perform relative to the broad market over time.

 

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So you mentioned best-in-class and you're really screening to find some of

 

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those winners. Can we chat a bit about how you take the entire investment

 

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universe and really find those opportunities?

 

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I know that it's a strategic beta approach.

 

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What does that mean for this ETF?

 

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That's a great question. Here we are starting with the MSCI All

 

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Country World Index ESG Leaders Index.

 

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It's a mouthful, but this index looks to take the broad global equity market

 

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and identify ESG leaders within given sectors

 

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while also screening out companies that may be involved in controversial

 

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business activities. In a sense you can say that ESG screening is built in

 

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from the start.

 

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Here the index [indecipherable] with companies that lag their industry peers on

 

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ESG performance, maybe those companies that are involved in severe ESG

 

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related controversies, or those that operate in controversial

 

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business activities, maybe that is controversial weapons, or

 

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companies that have significant exposure to areas like alcohol or tobacco.

 

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Because this screening happens upfront that means that these companies are

 

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not eligible for inclusion once we later apply that

 

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quantitative multi-factor model.

 

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It sounds like this fund takes a disciplined investment

 

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approach. How do you see this fitting inside an investor's portfolio

 

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and who is the ideal investor?

 

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That's a great question. In terms of how this fund fits into an ideal

 

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portfolio I'd say, as I mentioned earlier, it really is designed to be a

 

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core global equity holding, something that investors can use as a long term,

 

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well diversified, cost-efficient part of their portfolio.

 

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To the point of cost-efficiency, while fees are an important consideration

 

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I think what investors really care about is how a product

 

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performs after fees. In this case we have a cost-efficient solution

 

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that also seeks to deliver competitive net-of-fee performance over

 

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the long term. I'd say it looks and behaves a lot like the broad global

 

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equity market. Sector exposures are generally in line with the MSCI ACWI.

 

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With all this being said who is the ideal investor?

 

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I'd say for those who may already hold a passive global equity

 

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type of strategy in their portfolio it's a great compliment or even

 

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replacement. Here we really offer broad global

 

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market exposure, as well as systematic active decision-making, as

 

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well as sustainability considerations that are included alongside these

 

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traditional investment factors.

 

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I like that you mentioned performance after fees as

 

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well, and you also mentioned active decision-making when it comes to the fund.

 

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I know this is a strategic beta strategy so what kind of an influence do

 

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the portfolio managers have on the investment process?

 

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Absolutely. Although it does follow a systematic rules-based

 

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approach the portfolio managers do still play a very important role.

 

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Here on the strategy it's managed by three experienced portfolio managers

 

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at FMR, and they sub-advise the strategy on our behalf.

 

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They are also supported by a dedicated research team who is responsible for

 

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evolving and improving the model over time.

 

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This could look like incorporating new data or maybe improving signals.

 

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The portfolio is monitored daily and trades are based

 

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on the model's output. However, I will say there are

 

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rare occasions like major geopolitical events where human

 

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intervention is very important.

 

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In this case this is typically when there's market-wide industry

 

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or security level events that the model doesn't fully capture.

 

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In this case the team is going to evaluate that risk,

 

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determine the appropriate action. All this intervention is very deliberate

 

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and focused on risk management.

 

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An example of this was early 2022 at the onset of the

 

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Russia-Ukraine conflict the fund had exposure to Russian

 

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holdings, this was a scenario where for risk management purposes the

 

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portfolio manager stepped in and reduced that exposure.

 

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Interesting. It sounds like they have full control, if need

 

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be, to adjust where needed.

 

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I know we've talked a lot today about 2026 and now and what Fidelity's doing in

 

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this moment with sustainable investing, let's look forward to 2027,

 

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Julianna. Where do you see sustainable investing going, especially Fidelity's

 

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role in that?

 

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It's a tough question because this space is ever evolving and dynamic.

 

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I think today, as it stands, there are a few things that stand out.

 

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One, I think that sustainability, we'll continue to see it integrated

 

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into everyday decision-making.

 

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As I was saying earlier, it is less about ESG as a standalone concept and

 

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more about how these real-world factors like climate risk, human capital,

 

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governance, and supply chain resilience, really influence long term

 

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performance and risk. Second, we're seeing a greater emphasis on

 

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transition-focused investing.

 

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Rather than simply excluding sectors or focusing on these ESG

 

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labels investors are asking, how are these companies evolving over time?

 

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This creates opportunities to invest in companies that are

 

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improving their practices over time, not just those that are leaders today.

 

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Lastly, I think we're likely to continue to see improved disclosures

 

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and analytical tools.

 

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This really matters to investors because better information and better tools

 

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help them focus on what's truly relevant and also understand how

 

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sustainability is being reflected in their portfolios.

 

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While I don't have a crystal ball I think the direction is clear.

 

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Sustainable investing is becoming more pragmatic, more disciplined, and more

 

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focused on long term value creation.

 

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I as well don't have a crystal ball but you've definitely given us the tools

 

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today to understand a little bit better whatever comes next.

 

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Thank you, Julianna, for joining us today.

 

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Thank you for watching The Upside.

 

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