October 2026 Newsletter

Top sustainability stories for the month.

SDR Sustainability Entity Reporting December deadline looms

In case you missed it, under the UK Government’s Sustainability Disclosure Requirements (SDR), UK alternative investment funds (AIFs) with more than £5 billion in assets under management will need to publish their first SDR sustainability entity reports by 2 December 2026. The reporting requirements are designed to improve transparency around how firms identify, manage and disclose sustainability-related risks and opportunities, expanding on the TCFD structure and requirements.

With the deadline approaching, firms need to ensure they are ready to report including checking if they are in-scope, reviewing governance arrangements, and ensuring appropriate data is available. Early preparation can help identify reporting gaps, strengthen internal controls and streamline the reporting process. Read our article here and get in touch if you’d like more information or help preparing the report.

PRI publishes new guide on sustainable investing in hedge funds

The PRI has launched a new guide to help hedge fund investors and managers integrate sustainability and governance considerations across a wide range of investment strategies. The resource explores how responsible investment can be incorporated into asset selection, portfolio construction, risk management and stewardship, while recognising the unique characteristics of different hedge fund approaches.

The guide also highlights opportunities to strengthen responsible investment practices beyond direct investment activities, aligning with the PRI's six principles. Danesmead’s CEO Daniella Woolf is Co-Chair of the PRI's Hedge Fund Advisory Committee and contributed to the report, noting that it provides valuable guidance for navigating the nuances of applying responsible investment tools across diverse hedge fund strategies. Read the full guide here.

EU advances SFDR reforms to strengthen sustainable fund labels

The EU has taken a significant step towards reforming the Sustainable Finance Disclosure Regulation (SFDR), with the European Parliament adopting its negotiating position ahead of trilogue discussions. The proposals would replace the current Article 8 and Article 9 framework with a new fund categorisation system designed to improve clarity, comparability and investor confidence in sustainability claims. Parliament is also seeking stronger safeguards against greenwashing, including enhanced criteria for funds marketed using sustainability-related terminology.

A key area of focus is the proposed Transition category, where lawmakers are calling for stricter limits on fossil fuel investments and more robust evidence that portfolio companies are aligned with credible climate transition pathways. The Parliament's position also proposes restricting the new product labels to UCITS and certain retail investment products, meaning many alternative investment funds, including hedge funds, private equity and private debt strategies, would fall outside the categorisation regime. These funds would continue to be subject to entity-level sustainability disclosure requirements but would not be eligible to use the new sustainability labels. The proposals now move into trilogue negotiations with the Council and Commission, where the final shape of SFDR 2.0 will be determined.

ESOS Phase 4: time to turn plans into action

The UK Government has confirmed the framework for ESOS Phase 4, with a stronger focus on demonstrating delivery of energy-saving commitments rather than simply identifying opportunities. Organisations that qualify on 31 December 2026 will need to evidence progress against previous action plans, report energy savings achieved, and explain any commitments that have not been implemented. Private equity-backed groups should pay particular attention, as the "one in, all in" rule can bring entire portfolios into scope. With qualification approaching, businesses should review group structures, assess action plan progress, and ensure robust energy data and evidence-gathering processes are in place. Read more here.

Sustainable investing delivers stronger returns in 2026

According to Morgan Stanley, sustainable investment responsible investing. Sustainable funds delivered a median return of 4.9%, compared with 4.0% for traditional funds, supported by their higher allocation to equities during a favourable market environment. The “Sustainable Reality” report also highlighted continued investor demand, with sustainable fund assets under management rising 4.8% to a record $4.24 trillion as of 30 June 2026. In addition, sustainable funds attracted $38 billion in net inflows, although fundraising slowed during the second quarter. These findings suggest that sustainable investing can continue to generate competitive returns while providing exposure to long-term themes such as climate transition, resource efficiency and stronger corporate governance. The data challenges the perception that investors must sacrifice performance to achieve sustainability objectives.

CARB eases first-year climate reporting burden

The California Air Resources Board (CARB) has introduced reporting relief for companies preparing disclosures under SB 253, the Climate Corporate Data Accountability Act. In its 2026 reporting guidance, CARB confirmed a more flexible approach during the first reporting year, recognising the challenges businesses face in collecting and validating greenhouse gas emissions data. Companies that demonstrate good-faith efforts to comply will benefit from enforcement discretion, particularly where data limitations exist. The guidance aims to support implementation while maintaining California's commitment to climate transparency. The underlying reporting requirements remain unchanged, signalling a phased approach rather than a weakening of disclosure expectations.

If you’d like to know more or discuss any of these topics please get in touch.