The state of ESG 2026
Malk Partners’ fourth annual report examines ESG trends across private markets in 2026. It identifies a disconnect where strong LP and GP ambitions face capacity constraints at the portfolio-company level. Key themes include the growth of Responsible AI, decarbonisation strategies, and shifting regulatory landscapes in the US and Europe.
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OVERVIEW
Foreword from bradley Andrews
Bradley Andrews, Chief Executive Officer of SLR, notes that sustainability is now inseparable from business performance, rooted in risk, resilience, and long-term economic value. While momentum remains strong, the report identifies a critical gap: portfolio companies often lack the resources and expertise required to drive sustainability forward, necessitating stronger foundations and practical support.
Executive summary
The private markets landscape is operating in a more demanding environment where returns depend on operational improvements rather than cheap capital. A significant misalignment exists: while 71% of LPs might reconsider an investment in a GP that does not integrate ESG into value creation plans, only 23% of portfolio companies feel prepared to drive ESG-related value. This suggests that GPs must invest more resources into implementation at the company level.
About the surveys
The 2026 report is based on surveys from 80 GPs, 114 sponsor-backed portfolio companies, and 18 LPs. The data collection occurred between January and February 2026. The respondent pool represents over $17.2 trillion in AUM for GPs and $3.2 trillion for LPs. Most respondents are based in the U.S., with significant representation from Europe and Canada.
GP ESG programme overview
GPs are increasingly institutionalising their ESG capabilities. 60% of GPs now report having a defined annual ESG budget, a significant increase from 24% in the previous year. Furthermore, 32% of GPs now employ two or more full-time ESG leads. Engagement is shifting towards value; GP leads spend 56% of their time on portfolio operations and development, while reporting accounts for 38% of their workload.
ESG in the investment lifecycle
ESG integration remains robust across asset classes, with 94% of GPs reporting integration into their investment processes. Buy-side due diligence is considered ‘table stakes’, performed by 92% of GPs. There is an increasing trend in sharing these findings with company management, with an 11% year-over-year increase in firms that always share diligence results. Sell-side ESG due diligence is also growing, particularly in Europe where 100% of Private Equity GPs report completing it at least sometimes.
Evolving political & regulatory dynamics
Macro political volatility has had a limited impact on ESG integration, though U.S. government actions have primarily affected DEI programmes. 31% of U.S. GPs reported rolling back DEI aspects due to legal scrutiny. Additionally, firms are proactively adjusting their language to reduce perceived risk; 55% of GPs have eliminated the ‘ESG’ acronym from their programmes, opting for terms like ‘Responsible Stewardship’ or ‘Responsible Investing’.
The LP landscape
LPs continue to drive progress through high expectations. 94% of LPs complete ESG due diligence on GPs, and 83% of respondents—representing over $2.5 trillion in AUM—have declined to invest with a GP due to ESG concerns. European and Canadian LPs generally apply stricter scrutiny than their U.S. counterparts, particularly regarding the tracking of EDCI metrics and the failure to conduct target due diligence.
ESG value creation
While 52% of portfolio companies see the potential to capture financial value through ESG, they face significant execution barriers. 48% cite a lack of internal capacity, and 18% report a ‘lack of strategic direction’ as a hurdle. GPs are increasingly focused on this area, with 64% of Private Equity firms integrating ESG into portfolio-level value creation plans.
ESG data
Portfolio-level data collection is standard, with 75% of GPs tracking metrics. However, 51% of GPs identify data validation as a primary challenge. Despite the widespread use of third-party platforms (61%), many firms still struggle with stakeholder management and translating data into actionable insights.
Responsible AI
Responsible AI has emerged as a high priority, yet concrete action lags. 72% of LPs expect to allocate more resources to this area, but only 25% of GPs have formally defined what the term means for their investment activities. Roughly 46% of portfolio companies report being unprepared to address the topic.
GHG emissions & decarbonisation
Climate programming is critical, with 100% of LPs citing GHG emissions as a priority. Firm-level emissions tracking by GPs has reached 66%, and 45% of GPs now encourage or mandate tracking for all portfolio companies. However, a ‘decarbonisation gap’ remains; while 46% of companies track emissions, only 22% have implemented formal decarbonisation commitments.
Portfolio company ESG programme overview
Foundational ESG programming at the company level has declined. Adoption of ESG policies fell from 57% in 2024 to 42% in 2026. Oversight is becoming more distributed among functional leads rather than dedicated ESG professionals, which may limit visibility and coordinated progress.
Regional comparison
European stakeholders maintain stronger ESG priorities and programmes than their U.S. counterparts. For instance, 78% of European companies believe ESG can drive financial value, compared to 45% in the U.S. European GPs are also more likely to share diligence findings early in the ownership period.
Conclusions
The industry is not facing a pullback but an alignment problem. To move forward, LPs should provide a clear vision without overwhelming companies, while GPs must translate ambitions into company-level performance levers. Portfolio companies need to build internal capacity and link ESG initiatives directly to financial outcomes to ensure long-term resilience.