Sustainable Investing in 2026: A Legitimate Conviction With a Measurement Problem
- Marie-Laure Mikkelsen
- 17 hours ago
- 5 min read
SUSTAINABLE INVESTING & GREEN FINANCE INSIGHT SERIES — August 2026
At the Market Group DACH Retreat earlier this year, I attended a panel discussion on sustainable investing and impact. The session was well-run, the panellists articulate, and the conviction genuine. At the end, I raised my hand.
I said: Before this panel, I was confused about the definition of sustainable investing. After hearing you, I am even more confused. Everyone defines ESG and sustainability according to their own conviction, which leaves a lot of room for interpretation, definition, and conception. And when there is that much room for interpretation, the label tells you very little about the underlying reality.
The panellists' response was measured and professional. They acknowledged the diversity of approaches and pointed to a range of guidelines that provide a broad framework. Useful guidelines, they said. A spectrum of definitions. An evolving consensus.
It was, if I am honest, exactly the answer I expected. And it confirmed everything I had suspected.
The Conviction Is Real. The Measurement Is Not.
Let me be unambiguous about something before we go further. Sustainable investing is not a marketing gimmick. The transition away from fossil fuels is a physical and economic necessity. The impact of climate change on asset values, particularly in real estate, agriculture and infrastructure, is already measurable and accelerating.
The conviction that sustainable investing matters, that environmental considerations, social impact, and governance quality affect long-term returns, is not naive. It is increasingly supported by evidence.
The problem is not the conviction. The problem is the measurement.
"You cannot manage what you cannot measure. And in sustainable investing in 2026, we are attempting to manage something that the industry has not yet agreed on how to measure." |
The ESG Labelling Method: A Structural Failure
The ESG rating industry has produced something remarkable: a universe of methodologies so diverse that two major rating agencies can simultaneously give the same company a top sustainability score and a bottom sustainability score and both be technically correct within their own frameworks.
This is not a minor inconsistency. It is a structural failure. When MSCI, Sustainalytics, ISS, FTSE Russell and Bloomberg all produce materially different ESG scores for the same issuer, the label ESG tells you nothing about the underlying asset. It tells you something about the methodology of the agency that produced the score.
The same problem infects the fund universe. SFDR Article 8 and Article 9, the European framework designed to classify sustainable funds, have produced funds that hold tobacco companies, weapons manufacturers, and oil majors under the Article 8 label. The regulation, intended to create clarity, has added a new layer of complexity without resolving the underlying definitional problem.
"When everyone defines sustainability according to their own conviction, the label becomes a narrative, not a measurement. And like all narratives, the question is always whose interests it serves." |
The Parallel With Private Credit: A Familiar Problem
Regular readers of Alfinas research will recognise this problem. In our Private Debt Insight Series published in March 2026, we argued that NAV marks in private credit Evergreen funds are narratives, not valuations. The GP who simultaneously manages, values, and reports the asset has a structural conflict of interest that produces marks that serve the GP's interests, not the investor's.
The ESG measurement problem has an identical structure. The company that reports its own ESG data, selects which metrics to disclose, and chooses which rating agency to work with has every incentive to present a narrative of sustainability, not a measurement of it.
The solution is also similar: independent, standardised, third-party measurement. Not voluntary guidelines. Not a spectrum of acceptable definitions. A common framework, rigorously applied, independently verified.
"NAV marks are narratives. ESG scores are narratives. In both cases, the question is the same: whose narrative are they? And whose interests do they serve?" |
The Macro Confluence Makes This Urgent
The sustainable investing debate does not take place in isolation from the macro environment we analysed in our April 2026 Macro Confluence Insight Series. The Strait of Hormuz crisis has made the energy transition both more urgent and more difficult simultaneously.
More urgent, because energy security has moved from an abstract geopolitical concern to an immediate economic cost. More difficult, because fiscal constraints imposed by higher inflation and interest rates reduce capital available for long-horizon transition investments.
And yet the physical reality of climate change does not wait for the measurement debate to be resolved. The disruptions are rarely the apocalyptic headline events that dominate news cycles for a week before being forgotten. They are quieter, more persistent, and cumulatively more damaging: prolonged droughts that reduce agricultural yields across multiple seasons, flooding events that recur with increasing frequency in the same river basins, heat waves that reduce worker productivity and strain energy grids, and storms whose intensity, not always their frequency, is measurably increasing. The economic traces are real and growing.
The World Bank estimates that climate-related disasters caused over $400 billion in economic losses in 2025, a figure that understates the true cost by excluding the slower, cumulative impacts on agriculture, health, migration and infrastructure that do not generate insurance claims but reshape economies over decades.
For institutional investors, this is not a tail risk. It is a baseline scenario already priced into agricultural land values, coastal real estate, insurance premiums and infrastructure replacement costs in affected regions. The question is no longer whether climate change affects asset values. It is how to measure the exposure, and that measurement problem inevitably brings us back to the inadequacy of current ESG frameworks.
The result is a bifurcated market: genuine transition opportunities with compelling long-term economics, sitting alongside a flood of greenwashed products. Navigating this requires exactly the analytical rigour that the current ESG measurement framework fails to provide.
What This Series Covers
The Alfinas Sustainable Investing & Green Finance Insight Series -Summer 2026- takes a deliberately critical and constructive approach. We are not cheerleaders for ESG. We are analytical advisers who believe sustainable investing can generate genuine long-term value but only if approached with the same rigour we apply to every other asset class.
Article | Title | Core Question |
Intro | A Legitimate Conviction With a Measurement Problem | Why the absence of harmonised standards is sustainable investing's most fundamental challenge |
Part I | The ESG Labelling Chaos | When every agency has a different methodology — what does the label actually tell you? |
Part II | Carbon Assets as Portfolio Diversifiers | How to invest in carbon markets with rigour — EU ETS, Article 6 and voluntary markets |
Part III | Africa's Green Infrastructure Gap | The $2.5 trillion opportunity — and why blended finance is the only structure that works |
Part IV | From Labels to Impact- Blended Finance in Practice | How to build genuine sustainable impact portfolios without the greenwash |
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This article is published by Alfinas Alternative Investment Advisers for informational and educational purposes only. It represents the analytical views and opinions of the author and does not constitute investment advice. © Alfinas Alternative Investment Advisers, July 2026.
Marie-Laure Mikkelsen PhD., C.A.I.A | Founding Partner, Alfinas Alternative Investment Advisers | info@alfinas.com | www.alfinas.com
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