When the Vatican Bank announced the launch of two Morningstar-backed equity indices in February 2026, the Morningstar IOR Eurozone Catholic Principles and the Morningstar IOR US Catholic Principles, it sent a clear signal to global financial markets: values-based investing has well and truly gone mainstream. The indices, each comprising 50 medium- and large-cap companies screened against Catholic social doctrine, join a crowded and rapidly evolving field of funds guided by ethical principles. Their debut is perhaps the most striking symbol yet of how ESG investing trends in 2026 are reshaping the architecture of global capital.
The Vatican Bank’s foray into equity indexing is not merely a niche curiosity. According to Morningstar’s managing director of indices for EMEA and ESG, Robert Edwards, investors are increasingly seeking out benchmarks that reflect specific values-based or policy-driven criteria. That demand, once the quiet preserve of church endowments and university funds, has grown into a multi-trillion-dollar force capable of moving markets and influencing corporate behaviour on a grand scale.
From Fringe to Financial Fixture
Figure 1: Estimates by Schneider Electric and BlackRock about Impact Investing Market Growth
Environmental, social and governance, or ESG, investing has evolved considerably since its early days as a largely ideological pursuit. According to research published by the Bruegel Institute, the evidence on financial performance has long been contested. Some studies have shown a positive correlation between strong ESG practices and superior investment returns, while others have found no meaningful link. However, a comprehensive analysis drawing on more than 2,000 studies over four decades concluded that sustainable investing is uncorrelated with poor returns, a finding that has given institutional investors the confidence to act on their principles without sacrificing their fiduciary duties.
The figures tell a compelling story. The global impact investing market was valued at $102.4 billion in 2024, with projections suggesting it could nearly triple by 2030, according to analysis by Schneider Electric. ESG ETF assets, which were worth approximately $25 billion in 2018, were forecast by BlackRock to surpass $400 billion by 2028. Whether or not that target is met exactly, the trajectory is unmistakable.
Figure 2: According to Schneider Electric, the global impact investing market was worth $102.4 billion in 2024 and is expected to almost triple by 2030.
ESG Impact on Markets: Beyond the Numbers
The ESG impact on markets extends well beyond portfolio performance. Companies with robust environmental and governance practices are attracting a different calibre of long-term investor, one less likely to exit at the first sign of volatility. According to the IMD Business School, firms that score strongly on ESG criteria tend to demonstrate greater operational resilience, attract more loyalty from conscious consumers, and are better positioned to meet tightening regulatory requirements, advantages that can compound into sustainable competitive moats over time.
In emerging markets, the stakes are particularly high. Schneider Electric notes that ethical investing in these regions plays a crucial role in mobilising capital in alignment with the United Nations’ Sustainable Development Goals. By channelling funds into sectors like renewable energy, sustainable agriculture and inclusive infrastructure, ESG-aligned investment can foster more resilient economies while generating meaningful financial returns.
Challenges are there, of course. Limited ESG disclosure standards, inconsistent ratings methodologies, and the ever-present risk of greenwashing, where companies overstate their ethical credentials, continue to create friction for investors. The Bruegel Institute has flagged concerns that poorly designed ESG taxonomies could even give rise to asset bubbles if applied too mechanically. These are not small problems, and solving them will require coordinated effort from regulators, fund managers, and the companies themselves.
A Crowded Field, With Room to Grow
Back in Rome, the Vatican‘s new indices arrive at an interesting moment. Even as the broader ESG sector faces headwinds in the United States, where some states have pushed back against what critics call politicised investing, values-based funds are proving durable. The Ave Maria Mutual Funds, another Catholic-aligned vehicle, reported more than $3.8 billion in assets under management as of last year. Faith-based investing, it turns out, can deliver: Morningstar’s historic performance modelling suggests the Vatican’s US index would have returned nearly 17 per cent annually over the past decade.
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The lesson for Australian investors and fund managers is plain enough. ESG investing trends in 2026 reflect not a passing mood but a structural shift in how capital understands value. Whether the motivation is planetary stewardship, social justice, or adherence to a centuries-old religious tradition, the market is increasingly willing to put money where its values are, and the returns, more often than not, are following.
