January in Focus

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Article Type
The Wider Lens
Topic
Opinion
Published
February 05, 2026
Read time
5 mins
Author
Aegon AM Responsible Investment Specialists
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The Wider Lens

 

Looking beyond the bottom line for incisive, responsible investment insights

 

Welcome to The Wider Lens, where we share fresh thinking on all things related to responsible investing. Formerly the Sustainability Soapbox, the new name reflects the broader scope of our content, covering everything from climate insights and ethical issues to stewardship, ESG and more.

 

Water scarcity: the next defining investment risk

 

The UN’s latest water assessment is not merely a statistical warning but a portrait of a planet drifting toward what it terms water bankruptcy. Three‑quarters of humanity now lives in water‑insecure nations, and four billion people endure severe scarcity for at least one month each year. The numbers sound alarming, and they should be.

 

The report offers an unsettling reflection of a world edging into structural water scarcity: rapidly dwindling and increasingly contaminated aquifers, declining river flows across hundreds of basins, shrinking lakes and wetlands. Freshwater systems degraded by pollution, over‑abstraction and climate‑driven volatility are compounding the pressure.

 

It delivers a candid directive: industrial policy must avoid placing high‑water‑use industries in basins already stretched to depletion, while supporting existing sectors with technology, regulation and incentives to dramatically reduce their water footprints or, where necessary, relocate. Just as climate policy has begun steering investment away from high‑carbon pathways and towards decarbonising solutions, water policy must now guide capital away from activities that depend on systems that can no longer sustain them.

 

For responsible investors, the implications are immediate and material. Water scarcity is not an abstract environmental issue; it is a growing determinant of operational continuity, cost stability and long‑term asset resilience. Consider for example, semiconductors: production relies on ever increasing volumes of ultra‑pure water, yet manufacturing clusters remain disproportionately concentrated in areas of high-water stress. In the medium term, this global growth engine could encounter supply bottlenecks if adaptation fails to keep pace. In a world defined increasingly by hydrological limits, understanding which companies are advancing science‑based water adaptation will be central to long‑term value creation.

 

Asset owners double down despite the backlash

 

A new FTSE Russell survey of 415 asset owners across 24 countries shows that, contrary to the prevalent political rhetoric, sustainable investing continues to gain momentum across global markets. An overwhelming 73% of asset owners now actively incorporate sustainability into manager selection, with a further 23% planning to adopt such practices in the future – clear evidence of a steadily strengthening trend.

 

The drivers are firmly commercial: respondents cite financial performance, risk management and fiduciary duty as their primary motivations. Climate change remains the dominant concern, with 85% identifying it as a major investment risk – up sharply from previous years - while interest in human capital management issues is also rising, underscoring the need for robust integration into the investment process, such as the recent development of our human rights framework.

 

When it comes to implementation, asset owners are almost evenly split between ESG integration (61%) and thematic ESG investing (60%). Notably, the survey highlights a strong preference for engagement over divestment, suggesting investors increasingly see active stewardship as an effective path to managing high‑carbon exposures.

 

The divergence defining the EV market

 

According to the latest data from Benchmark Mineral Intelligence, global EV sales reached 20.7 million in 2025, a 20% year‑on‑year increase, showing that the EV market remains resilient, despite policy shifts and regional volatility.

 

Europe was the standout performer, expanding 33%, supported by revived subsidies and softer EU emissions rules that still require manufacturers to maintain strong EV sales through 2027. Major markets like Germany and the UK grew 48% and 27% respectively. In December, battery electric vehicles (BEVS) outsold petrol vehicles for the first time. Looking to 2026, Europe is expected to see a further 14% growth, despite proposals to relax the 2035 tailpipe‑emissions target.

 

 

China grew 17%, driven by fierce domestic competition and expanded model choices, but growth slowed sharply in the final quarter due to elevated 2024 comparison levels. Chinese manufacturers, in particular BYD, accelerated exports, which more than doubled to over one million, with strong penetration in Europe, Southeast Asia, and South America.

 

North America, by contrast, had a turbulent year. The U.S. market stagnated after federal tax credits were removed in September, with sales plunging 49% in Q4. For 2026, U.S. EV sales are expected to fall 29% as Original Equipment Manufacturers (OEMs) prioritise range‑extended hybrids over fully electric models.

 

Finally, the rest of the world grew 48%, heavily driven by Chinese imports, particularly in Southeast Asia and Latin America. South Korea also posted strong growth at 50%.

 

As with much of the energy transition the overall picture is one of regional divergence: Europe and emerging markets are gaining momentum, China is maturing but expanding globally, while North America faces structural policy‑driven headwinds.  

 

From the sidelines: how U.S. withdrawal is redefining climate leadership

 

The U.S. has formally withdrawn from several major international climate organisations, including the UN Framework Convention on Climate Change (UNFCCC) and the Intergovernmental Panel on Climate Change (IPCC). While the decision has generated significant negative headlines – given the U.S.’s status as the world’s second‑largest greenhouse gas emitter – the practical impact is likely to be limited. The current administration had already stepped back from most international climate processes, evidenced by the U.S.’s failure to submit its mandated emissions inventory last year, a clear breach of its UNFCCC obligations.

 

However, the U.S. can still exert influence from outside these formal structures, and recent behaviour suggests it may do so in ways that complicate global climate progress. Last year, for example, U.S. officials reportedly threatened countries and negotiators with tariffs and visa restrictions if they supported an International Maritime Organization (IMO) proposal to reduce shipping emissions. The initiative was ultimately postponed due to a lack of consensus.

 

The broader strategic implications are notable. Although the administration regularly positions its agenda as countering China’s global influence, disengaging from climate institutions appears to have the opposite effect. China continues to champion international climate cooperation, investing heavily in renewables and low‑carbon technologies while shaping global standards through active participation in multilateral forums.

 

For investors, this shift in leadership dynamics matters. A reduced U.S. role could entrench China’s position in setting the agenda for the clean‑energy economy, potentially making it more difficult for the U.S. to regain influence in years ahead.

 

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Aegon AM Responsible Investment Specialists
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