Sustainable Investing Trends To Watch In 2025 : Key Insights for Investors

As we look toward 2025, sustainable investing is at a pivotal moment, shaped by a confluence of global challenges and opportunities. In 2024, the world witnessed escalating geopolitical tensions, a wave of regulatory shifts, and accelerating climate change impacts. These forces are reshaping how investors approach sustainability, prompting both caution and innovation across financial markets.

Figure 1. Key Trends Shaping Sustainable Investing in 2025

This article examines the key trends that will define sustainable investing in 2025, drawing on insights from our experts: Lorenzo Saa, Tom Willman, and Patricia Pina. Each offers a unique perspective on the evolving landscape—from the challenges of navigating political instability and ESG backlash to the promise of regulatory alignment and technological advancements.

Lorenzo Saa: Sustainable Investing Amid Geopolitical and ESG Challenges

Geopolitical tensions surged in 2024, with continuing conflicts in Ukraine and the Middle East, elections in over 80 countries, and significant political shifts in the US, EU, and Asia.

Given this backdrop of political upheaval, it is not surprising that the combined three Rio Convention COPs—held in Cali, Baku, and Riyadh—failed to take the significant steps needed to address the pressing nature and climate challenges we face.

2024 was a challenging year for sustainable investing. Frustrations grew in Europe due to regulatory burdens, leaving many sustainable investors feeling more like compliance officers. Additionally, concerns regarding the ESG backlash prompted many asset managers—especially in the US—to retreat from collaborative initiatives and adopt a more cautious approach, known as “greenhushing.”

However, despite regulatory frustrations and ESG backlash, sustainable investing has shown resilience. Many asset managers signaled that it remains a priority, driven by both conviction in long term performance and increasing regulatory disclosure requirements.

As we look ahead to 2025, several developments seeded in 2024 will shape the landscape of sustainable investing. Here are the five trends to watch:

1. Transition Plans Will Hit the Road

New Nationally Determined Contributions (NDCs) are expected by February 2025, but it is unlikely that all will be disclosed by this time. Many updates will come closer to COP30 in Belém. These updated NDCs will be crucial in shaping global climate action and either reaffirming commitment to the 1.5°C target or signaling a shift toward less ambitious goals.

However, with a potential withdrawal of the new US administration from the Paris Agreement, commitments could fall short of delivering on the Baku to Belém Roadmap to 1.3T outlined at COP29. As a result, the transition will require moving beyond public funding towards broader setups that incentivize private capital for the climate transition.

Corporate transition plans will become even more critical as investors increasingly leverage frameworks like GFANZ, IIGCC, and TPT to drive their investment decisions. Our recent research indicates that over 300 high-emitting companies are now disclosing these plans; however, only 40% have reported quantifiable measures supporting their targets.

Investors should leverage these transition plans reports and their underlying data to ensure that these drive genuine economic transitions rather than mere paperwork.

2. Nature and Biodiversity: Catching Up but Not Flourishing Yet

After COP16’s mixed results, the Parties will meet again in Rome in February to establish financing for 30×30 commitments. With strong leadership from Colombia and reduced controversies surrounding fossil fuels at Climate COPs, we anticipate positive outcomes from Rome.

In 2025, investor engagement with nature and biodiversity will continue to evolve, though the focus will remain more on understanding and reporting rather than transformative decision-making. Regulatory pressures are driving this trend, with frameworks like PAI 7 in SFDR, CSRD, and CSDDD pushing for an initial set of nature-related disclosures. Building on this foundation, the Taskforce on Nature-related Financial Disclosures (TNFD), already adopted by 150 financial institutions, is playing a pivotal role in shaping a more comprehensive transformation.

We anticipate that approximately 100 investors will establish initial targets and conduct nature risk and impact assessments. However, detailed implementation strategies will take longer. This measured approach reflects the complexity of integrating nature considerations into investment frameworks.

A significant breakthrough is the newfound availability of robust data, eliminating previous barriers to action. Comprehensive ecosystem services assessments are now accessible at the location level. When combined with detailed company asset and production information, investors can now gain unprecedented insights into corporate dependencies and impacts on natural systems—a level of understanding that was unimaginable just a decade ago.

3. A More Silent and Solo Stewardship

In 2025, ESG backlash, particularly in the US, will drive a more cautious investment approach. Investors will prioritize long-term returns while maintaining a low-profile approach on sustainability to avoid potential political or reputation risks.

Collaborative sustainability initiatives are expected to face further headwinds in 2025. Prominent collective efforts like Climate Action 100+, the Net-Zero Asset Managers Initiative, and even initiatives like the Principles for Responsible Investments may see more exits. US managers will lean towards individual strategies, favoring behind-the-scenes sustainability integration rather than bold, public commitments. Collective efforts will give way to more discrete, institution-specific strategies that minimize exposure to potential ESG-related controversies.

A potential turning point may emerge if sustainability-focused assets begin to recover from recent underperformance. Asset owners may become more assertive, scrutinizing managers’ ownership policies and potentially shifting capital to European or global managers who maintain public sustainability commitments.

4. Regulations Shift: Less New, More Implementation and Alignment

The regulatory landscape in 2025 is poised for significant transformations, characterized by three pivotal shifts that will reshape sustainability reporting and investment strategies.

First, full-scale implementation will begin. In Europe, 2025 marks the transition from drafting new regulations to implementing and aligning existing ones. Frameworks like CSRD and ISSB standards will become fully operational, improving data quality for decision-making. Investors will navigate overlapping requirements like SFDR and SDR, now backed by real corporate data.

Second, the global divergence of regulatory approaches will continue to grow. While Europe enforces mandatory disclosures, the US faces uncertainty with the SEC’s Climate Disclosure rule. Nevertheless, US companies operating globally may adopt international standards to stay competitive.

Third, there will be a slowdown in new regulations. The focus is shifting from creating complex new frameworks to refining and harmonizing existing ones. Europe is likely to maintain its leadership in Green Deal initiatives but may simplify regulations like the SFDR based on the UK’s more streamlined approach with the SDR.

5. AI: A New Partner For Sustainability

AI adoption is set to accelerate in 2025, further proving its transformative potential for sustainable investing. For investors ready to embrace it, AI offers a much-needed assist, enabling them to focus on their core expertise: making strategic investment decisions.

With growing data from CSRD and other frameworks, AI can address data quality issues and unlock insights by detecting patterns beyond human capabilities. AI-powered tools will enhance portfolio analysis, offering granular views of sustainability performance.

AI can also streamline regulatory reporting. For example, some AI systems have cut up to 80% of recurring SFDR compliance work. Beyond compliance, AI helps investors monitor, optimize, and predict sustainability challenges, improving efficiency and identifying opportunities.

However, AI’s growth comes with scrutiny. The “ESG of AI”—ethical, social, and environmental considerations—will be key.

Mastery of AI tools will be essential for staying ahead in a rapidly evolving landscape, underscoring the need for a balanced approach that maximizes opportunities while addressing societal concerns. Investors who proactively address these concerns by ensuring AI models are well-governed, transparent, and environmentally conscious will gain a competitive edge, mitigating reputational risks and aligning with regulatory expectations.

Tom Willman: Navigating the 2025 Regulatory Maze in Sustainable Finance

Sustainability regulations in 2024 marked a significant milestone for sustainable finance, yet their full impact is still unfolding. Key developments included the first reporting period under the EU’s Corporate Sustainability Reporting Directive (CSRD), based on the EuropeanSustainability Reporting Standards (ESRS), and the global expansion of corporate sustainability standards through the ISSB framework. These initiatives are designed to harmonize sustainability reporting and give investors access to more reliable and comparable data.

The evolution of the EU’s Sustainable Finance Disclosure Regulation (SFDR) also stood out, particularly with the implementation of ESMA’s naming guidelines aimed at reducing greenwashing by curbing the use of ESG-related terms unless specific criteria are met. The UK rolled out its Sustainability Disclosure Requirements (SDR), setting the stage for what is arguably the most ambitious global framework for fund labeling to date. Together these measures reflect a growing recognition of the need to ensure sustainability claims are backed by substance.

Looking ahead, 2025 will test the effectiveness of these regulations. Key milestones include the first compliance reports under CSRD and SDR, the continued roll-out of ESMA’s naming rule in May, and ongoing EU-level obligations such as pre-contractual and ongoing SFDR reporting, Taxonomy KPIs, and Pillar 3 disclosures.

We’ll also see the Commission proposal for SFDR 2.0 and potentially new Taxonomies, including in the UK. However, these frameworks, while promising, raise pressing questions: will they meaningfully improve corporate reporting and investment decisions, or will businesses struggle under the weight of increasing compliance requirements?

Expect greenwashing prevention to continue to dominate the regulatory agenda in 2025. Companies will need to clearly communicate the sustainability features of their products with transparent data and robust KPIs. This requires not just compliance but also a strategic approach to integrating sustainability into core operations. In the US, demonstrating the financial materiality of ESG efforts will be key amid political headwinds. In the US, the ability to demonstrate the financial materiality of ESG efforts will be key to maintaining credibility and advancing strategies amid political headwinds. While federal progress on ESG remains fraught, state-level initiatives like California’s may push the envelope. Paradoxically, this scrutiny might also spur innovation, driving demand for stronger ESG data to substantiate claims and counter accusations of greenwashing.

Globally, sustainability frameworks remain fragmented. Interoperability is a long way off, complicated cross-border operations. Several markets in Asia, along with countries like Canada, Australia and Switzerland are advancing their own sustainability frameworks. Additionally, the EU’s forthcoming Green Bond Standard and extended CSRD scope to non-EU companies in 2028 will raise the bar for global firms.

Access to reliable, transparent data will be the foundation of compliance. For banks, the implementation of full Pillar 3 ESG risk disclosures in 2025 will not only require granular reporting but should serve as a catalyst for integrating climate risk management into broader strategies. On the investor side, we saw the rollout of the FCA’s SDR regulation allowing funds to label themselves depending on different sustainability objectives. We also expect a proposal from the European Commission in 2025 to revamp the SFDR.

Ultimately, 2025 will be a defining year for sustainable finance. While these regulations are a step in the right direction, their success will depend on whether they drive meaningful action or remain a box-ticking exercise. Firms that prioritize data quality, transparency, and adaptability will be better positioned to navigate this evolving landscape and seize the opportunities it presents.

Patricia: Confronting Climate Risks and Accelerating Clean Energy

As 2024 comes to a close, climate change effects continue to accelerate. This year is set to be the warmest on record and the first to surpass 1.5ºC above pre-industrial levels, according to Copernicus, the EU’s climate change service.¹ This concerning milestone highlights the unstoppable progress of climate change, with far-reaching and devastating consequences.

Across the globe, extreme and catastrophic weather events are becoming more frequent—Hurricane Helene in the United States, and Spain’s deadly DANA phenomenon in Europe among them.² These are not isolated incidents, but clear signs of a rapidly changing climate and its growing impact on communities worldwide.

Yet, there is some good news. The clean energy transition is accelerating, with global investments in clean energy now nearly double those in fossil fuels, led by solar photovoltaic technologies.³ Additionally, supportive policies have tripled across G20 countries since 2020, signaling a shift in global priorities.⁴

However, the hard truth remains: while progress is being made, these efforts are clearly insufficient. Despite the commitments made by 110 countries, which cover 88% of global greenhouse gas emissions, the numbers fall short of what is needed. Even if implemented, emissions would reach 21 Gt CO2e in 2050—far exceeding the 8 Gt CO2e necessary to limit warming to 1.5ºC.

Looking to 2025, stronger policy responses might be inevitable as catastrophic events continue to multiply, intensifying pressure on governments and businesses to act decisively. While political challenges may hinder climate policies in some regions, the transition to a low-carbon economy has passed its inflection point. The speed of this transition will shape its costs and benefits, creating both winners and losers. Those who anticipate these shifts and adapt early will secure a critical first-mover advantage.

2024 was expected to be a pivotal year for transition plans, which are intended to guide the strategic reorientation of corporations and portfolios toward net-zero goals. However, these plans remain in their infancy, focusing on what information should be disclosed and often resulting in an overwhelming and seemingly endless list of requirements. Yet, a critical question remains: how can we assess whether the information provided is credible and feasible?

In 2025, the focus must shift toward extracting data from transition plans that provides actionable insights for investors. This will be essential to ensure these plans translate into meaningful progress rather than mere compliance exercises.

The need for climate adaptation and resilience can no longer be ignored. With the impacts of climate change expected to intensify, protecting investments, minimizing losses, and seizing opportunities in adaptation will be critical in the years ahead. Regardless of political discourse, the financial imperative to address climate risks and capitalize on the transition to a sustainable economy will drive meaningful action.

The dual realities of 2024—a year of devastating climate impacts and significant progress in clean energy—highlight both the urgency and the potential of global efforts. As we enter 2025, the challenge will be to balance immediate risks with long-term opportunities, ensuring a sustainable and resilient future for all.

The Road Ahead in 2025

In conclusion, 2025 will be a pivotal year for sustainable investing, marked by challenges and opportunities across geopolitical, economic, and social dimensions. With new pieces constantly added to the puzzle, we anticipate headwinds but also recognize the potential for meaningful progress.

The tipping points we are witnessing—across climate, nature, and social systems—demand bold, data-driven action from the institutional investor community.

By embracing the insights and opportunities at hand, we can navigate the risks while building portfolios that drive both resilience and long-term prosperity. The stakes are high, but so are the rewards.