We face a double paradox. Financial markets seem ever more detached from macroeconomic and ecological realities. At the same time, global investment flows continue to move in directions that undermine rather than strengthen future stability and resilience. Sectors vital for long-term wellbeing - renewable energy, social infrastructure, sustainable food systems and education - remain chronically underfunded. Meanwhile, capital is still channelled towards activities that increase volatility and environmental harm, including speculative technology bubbles, the arms industry and the expansion of fossil fuel assets.

Hans Stegeman, Chief Economist Triodos Bank

The first paradox is psychological and behavioural. Markets often display optimism, even when warning signals flash red. Productivity growth is weak in many advanced economies, ecological constraints are becoming increasingly pressing and inequality is persistent, yet valuations remain elevated. This ongoing myopia may trigger a crisis that extends beyond finance.

The second is structural. The financial system continues to reward short-term returns over long-term resilience. Capital allocation patterns systematically diverge from what is socially and ecologically necessary.

At the heart of this turbulence lie multiple tipping points: destabilised ecological systems, eroding institutional legitimacy and societies risking irreversible change. The consequences extend far beyond the next quarter or election cycle - they determine whether our economies sustain life or consume it.

Investment Outlook 2026

Our Investment Outlook 2026 explores structural developments and challenges that could become turning points for the global economy and offers insights to help investors make bold investment choices towards stability.

Read our insights

Paradox I: real economic challenges and financial markets

The gap between the real economy and financial markets is widening. The real economy faces mounting risks: global debt levels are high, trade is fragmenting into competing blocs, central banks struggle to balance inflation control with financial stability and independence, supply chains are being rewired and energy security has become a strategic imperative.

By contrast, key parts of the financial economy are calm on the surface. The expansion of passive investing and the concentration of market capitalisation in a handful of technology firms reduces market dispersion and may conceal underlying fragility.

Real economic challenges and financial markets

Paradox I

New risks have emerged in crypto markets and in the proliferation of stablecoins, which were promoted as innovations to improve access and reduce friction. In reality, they introduced leverage, opacity and channels for contagion. Stablecoins can also create procyclical demand for sovereign debt as collateral, adding complexity to public debt markets when liquidity conditions shift.

This apparent quiet in market pricing has several causes: an abundance of capital, a persistent search for yield suppressing risk premia and risk fatigue after repeated warnings that did not result in market disruption. In addition, the optimism about artificial intelligence boosts expectations for future earnings and productivity despite uncertainty about its actual effects. Ultimately, however, capital flows realign with the real risks, and this rarely happens smoothly.

Paradox II: misallocation in value creation

There is widespread agreement on what the real economy requires: increased investment in climate mitigation and adaptation, nature-based solutions, biodiversity protection, sustainable food and agriculture, affordable housing, education and essential social infrastructure. The annual global financing gap for these priorities amounts to trillions of euros. Yet, capital continues to flow predominantly towards the expansion of fossil fuel assets, resource-intensive extractive industries, and renewed militarisation.

How to navigate

The best way to navigate those paradoxes is to understand what an economy truly is: a complex adaptive system, with non-linear changes, feedback loops and not tending to some kind of ‘natural’ equilibrium as ‘traditional’ economics tells us.

Tipping points are what investors should look at. These reflect the non-linear manner in which change occurs. Ecological tipping points arise when cumulative pressures push ecosystems into new, often irreversible, states. Technological tipping points happen when factors such as declining costs, network effects, and learning rates lead to rapid adoption following a prolonged period of gradual progress. Social tipping points occur when shifts in awareness, peer influence and institutional support move behaviours from the margins to the mainstream. Experimental evidence shows that when roughly a quarter of individuals adopt a new norm, momentum becomes self-sustaining. Financial flows can either accelerate these transitions or exacerbate systemic breakdowns.

When capital becomes detached from real risks, it will ultimately realign. Investors who view volatility as an opportunity should anchor their portfolios to assets and enterprises that can endure stress. In today’s environment, the most radical investment is not one that fuels instability, but one that supports stability, resilience and peace. Anchoring our world requires reconnecting capital to the real economy and to the long-term conditions necessary for human wellbeing. ‘Peace’ is more than the absence of war. In a broad sense, it represents a balance between people and nature, immediate returns and lasting prosperity, capital and care.

Investing sustainably is therefore an act of urgency, directing capital towards what sustains life: renewable energy, regenerative production, inclusive societies and food systems that nourish rather than deplete. These are the transition themes we have been pursuing for years, delivering returns while strengthening the foundations of peace and shared prosperity.

Misallocation in value creation

Paradox II

In 2024, for example, global military expenditure reached USD 2.7 trillion, the tenth consecutive year of increases in military spending, and now averages 2.5% of global GDP (SIPRI 2025).

To put this into perspective: eliminating extreme poverty worldwide would cost under USD 300 billion annually – just 11% of global military budgets. Closing the global biodiversity financing gap requires approximately USD 711 billion per year by 2030, less than a third of military spending. Meanwhile, developing countries need USD 2.3-2.5 trillion annually by 2030 to meet their climate goals (nearly the entire military budget), of a total needed amount of USD 7.5 trillion per year through 2030. In other words, current military expenditure alone could eliminate extreme poverty, close the biodiversity gap and still provide over USD 1.6 trillion for climate action.

Yet, we choose otherwise. Humanity has already breached seven of the nine planetary boundaries that define a safe operating space for life on Earth (Planetary Health Check 2025). Stability and peace have become counter-cultural in modern markets. Growth generated by conflict or crisis still counts as progress in national accounts. Investing in arms or fossil expansion appears profitable because the costs are externalised to nature and to future taxpayers. The economy, counting earthquakes, depletion and wars as positive contributions to growth, often finances destruction first and reconstruction later, mistaking throughput for wellbeing. True progress lies in prevention, not repair. This second paradox is not merely moral - it is a fundamental misallocation at the heart of value creation.

Investing to sustain what matters

The case for this approach is stronger than ever. The institutional architecture that underpins coordination and trust is under strain. Multilateral agreements are being challenged, trade regimes are fragmenting and environmental standards are increasingly politicised. Meanwhile, financial regulation struggles to keep pace with innovation, leaving gaps where systemic risks can accumulate

 

New forms of digital speculation - particularly in crypto assets and stablecoins - add fragility through leverage, opacity and energy use, while creating little productive value. Artificial intelligence adds speed and complexity to market dynamics, while algorithmic trading prioritises signals and short-term returns over sustainability or social welfare. Together, these trends reinforce the first paradox by further detaching finance from the real economy.

In such conditions, long-term, values-based investment becomes both necessary and prudent. It ensures that capital remains anchored in productive activity and aligned with the social, ecological and institutional systems on which markets ultimately depend. It also addresses the second paradox by redirecting capital flows towards sectors that genuinely build resilience rather than extract value from instability.

Our strategy rests on three interlinked commitments:

  • Stewarding long-term transitions. We focus on areas that build structural resilience and reduce systemic risk: renewable energy, circular material flows, sustainable food systems and inclusive societies. Research on mission-oriented innovation and sustainability transitions shows that transformative investment succeeds when it aligns with shared public goals rather than narrow financial incentives.
  • Reinforcing real-economy resilience. Resilience is the capacity to maintain function under stress. We invest in enterprises and projects that strengthen adaptive capacity, from decentralised and flexible energy systems to regenerative agriculture and community finance. Diversification across such tangible assets provides more stability than financial diversification alone, because it diversifies the underlying functions society needs to keep working.
  • Restoring institutional and normative foundations. Finance depends on trust, clear rules and legitimacy. When these foundations weaken, the cost of capital will rise. Through engagement with policymakers, regulators and investee companies we support the rules and norms that keep markets credible. A fair and well-regulated financial system serves as a peacekeeping institution in society.

From tipping points to turning points

Tipping points can signal collapse or renewal, depending on the direction of capital flows and on how institutions respond. Social tipping dynamics show how norms change once enough actors commit. The rapid decline in the cost of renewables, the diffusion of circular business models and the rise of impact finance all demonstrate how policy, technology and awareness can alter expectations. Finance played an important role in entrenching our fossil dependence in the twentieth century; in the twenty-first it can help driving and securing regeneration.

Anchoring is not inertia. It is a commitment to hold portfolios to the functions society must keep working under stress: clean energy, healthy ecosystems, inclusive communities, credible institutions. It resists short-term noise and stays aligned with the conditions that make markets possible in the first place. Peace is not a by-product of prosperity. It is its precondition.

As systems shift, investors have a choice. They can chase momentum in a volatile tide of speculation. Or they can anchor capital in what endures. When enough capital makes that choice, tipping points turn into turning points: from breakdown to renewal, from volatility to stability, from extraction to restoration. Triodos Investment Management’s strategy is built for that transition. We invest not in what moves the market today, but in what will sustain the world tomorrow.