At the start of 2025, Core-Asset highlighted the growing importance of Environmental, Social, and Governance (ESG) factors across financial services. Our expectation was clear: ESG would move beyond a niche overlay and become embedded in mainstream investment practice across both institutional portfolios and private client wealth management.

Now, as we look back on 2025 and ahead to 2026, that transformation is well underway, but progress remains uneven. Drawing on our work across the sector, we explore how ESG integration is evolving in the front office and wealth management spaces, what challenges firms face, and how employers can respond.

Front Office / Institutional: ESG Becomes Operational

For institutional investors, ESG has moved decisively from concept to practice. Portfolio managers and analysts are now embedding sustainability factors directly into stock selection and portfolio construction. Asset owners and pension funds increasingly demand credible evidence of ESG integration, making transparency and defensibility essential to retaining mandates.

Robust evidence of genuine ESG is needed for this, and regulatory frameworks are providing it, including the UK’s Sustainability Disclosure Requirements (SDR), the EU’s Sustainable Finance Disclosure Regulation (SFDR), and the Corporate Sustainability Due Diligence Directive (CSDDD).

We are also seeing:

• Fund Flow Volatility: ESG funds saw $8.6bn outflows in Q1 2025, before rebounding with $4.9bn inflows in Q2. This volatility shows how politics and sentiment shape flows.
• Performance Differentials: Some climate and sustainability funds outperformed, but overall ESG fund growth lagged the wider market.
• Data and Technology: Investment teams rely heavily on ESG data platforms, but inconsistent standards mean demand for skilled analysts is high.
• Global Fragmentation: UK and EU regulation is advancing, but global alignment is patchy. Firms managing cross-border portfolios must also track US developments.
• Sustainable Finance Expansion: Green and sustainability-linked bonds continue to grow, requiring specialist structuring, oversight, and reporting skills.

In short, ESG is no longer a marketing narrative - it’s an operational reality, reshaping how investment decisions are made and how firms recruit, train, and reward talent.

Private Client / Wealth: Demand Meets Scepticism

In the wealth management space, ESG continues to capture attention, but enthusiasm has cooled compared to the post-pandemic peak.

Younger high-net-worth and family office clients remain strong drivers of ESG-aligned portfolios, while older investors remain more focused on returns, with many unconvinced that ESG investments deliver consistent performance.

Key trends include:

• Awareness Gaps: Only a third of retail investors are familiar with ESG concepts. Advisers must translate complex standards into accessible, client-friendly advice.
• Declining Retail Enthusiasm: The proportion of UK investors considering ESG fell from 66% in 2021 to under 50% in 2024. ESG “fans” are also declining.
• Green Premium Gap: Surveys show consumers are willing to pay ~10% more for sustainable goods, but this enthusiasm doesn’t consistently translate into ESG investment flows.
• Global Consumer Perspective: Even in cost-sensitive markets (e.g. CEE), clients demand sustainability, showing ESG remains a durable global theme.

For wealth managers, the opportunity is clear: those who can offer credible, comprehensible ESG propositions will win next-generation clients and strengthen long-term loyalty.

Slower Progress and Emerging Risks

Despite institutional commitment to ESG, progress has been slower amongst retail investors, where enthusiasm has waned due to scepticism over greenwashing and inconsistent fund performance. The issue of trust is not helped by the lack of standardisation, with ESG frameworks being fragmented, creating complexity and confusion amongst investors.

Regulatory changes have also slowed the rollout of corporate net-zero transition plans, while EU Ratings Regulation, due to come into effect in 2026, place further pressure on firms to align their plans with methodologies.

Implications for Employers

Whether serving institutional or private clients, financial services firms now face common workforce challenges:

• Hybrid skill sets: Professionals who blend technical expertise with ESG insight are in high demand.
• Talent scarcity: The limited pool of experienced ESG specialists is driving salary inflation and retention risk.
• Credibility and culture: Clients expect substance over marketing; cultural alignment is critical.
• Data and AI literacy: The ability to analyse and govern ESG data - particularly through AI - is fast becoming a core competency.
• Litigation and regulatory risk: Firms must ensure all ESG statements, labels, and methodologies can withstand external scrutiny.

How Core-Asset Helps

At Core-Asset, we support firms across financial services to build sustainable capability through:

1. Sourcing hybrid ESG talent – professionals who unite financial expertise with sustainability fluency.
2. Building resilient teams – securing individuals who strengthen both immediate capacity and long-term succession.
3. Upskilling existing staff – pairing experienced professionals with ESG specialists to develop internal expertise.
4. Supporting adviser development – helping wealth firms recruit relationship managers who can explain ESG credibly and build next-gen trust.
5. Strategic workforce planning – integrating ESG skills across investment, compliance, and advisory functions.

Looking Ahead to 2026

The trajectory is clear: institutional investors will face greater regulatory alignment and enforcement, while private clients will increasingly expect ESG integration as standard. Global fragmentation will persist, but the scope of ESG will broaden to include biodiversity, nature risk, and social impact.

AI and big data will play a central role in ESG analytics - creating efficiency and transparency, but also new governance challenges. And as litigation around sustainability claims grows, credibility and culture will remain the ultimate tests of ESG maturity.

For employers, the challenge is the same across both spheres: success depends on securing and developing the right people. With deep sector expertise and a proven track record, Core-Asset is helping financial services firms meet regulatory demands, satisfy client expectations, and build the sustainable teams of the future.

Read more of our insights in the 2025 Salary Guide.