As awareness of environmental issues grows, society is looking for ways to potentially reduce the effects that we have on the climate, and we’re already making significant steps forward. According to the BBC, 2024 was a record-breaking year for wind power in the UK as we produced more electricity than ever before from this renewable source.
This move towards clean energy and more sustainable business practices is happening in many countries around the world. As climate change remains a serious issue, these trends will likely continue in the future, and so could offer a unique opportunity for investors.
Sustainable investing allows you to support these positive practices and, as the “green” sector grows, potentially generate significant returns in the future. However, sustainable investing is a rapidly changing area, and it’s important to keep up with the latest developments.
If you’re interested in sustainable investing, here are three trends to watch out for in 2025.
1. Regulatory changes could reshape the ESG fund landscape
Environmental, social, and governance (ESG) funds have been rated in these three areas, to denote whether they invest in companies that support sustainable practices. These funds may be a preferred option for those who want to invest in a way that supports their ethical values.
However, one of the major criticisms of ESG investments in recent years is that they are prone to “greenwashing” – companies or funds claiming to be greener than they actually are. For instance, some ESG funds invested in fossil fuel companies, which do not align with the environmental values that sustainable investors may hold. It’s also common for businesses to publicise environmental initiatives, while continuing with harmful practices behind the scenes.
Fortunately, new regulations aim to solve this problem. On 31 May 2024, the Financial Conduct Authority (FCA) introduced new greenwashing rules, which stated that labelling of ESG funds must be “fair, clear, and not misleading”.
The FCA also introduced a new system to categorise ESG funds and provide more clarity about their green credentials. Our article about how new FCA greenwashing guidelines could affect your investment portfolio has more information on this.
Additionally, the European Securities and Markets Authority introduced its own naming guidelines designed to prevent greenwashing.
As a result of these new measures, we could see a reshaping of the ESG fund market during 2025. Funds that aren’t as sustainable as they claim might rename themselves, so they no longer carry an ESG label. Alternatively, certain funds could drop investments in fossil fuels and other harmful practices to ensure they meet the requirements of a sustainable fund.
This might mean that you see changes to some of your sustainable investments. More importantly, new regulatory changes mean that in 2025, it could become easier to identify truly sustainable investments and create a portfolio that aligns with your ethical values.
That said, greenwashing could still be an issue. You may want to seek professional advice when creating a portfolio to ensure the ESG investments you choose are reliable and align with your goals and attitude to risk.
2. The rise of “impact investing”
ESG funds typically contain investments in a range of different companies that may promote positive environmental practices or operate in a socially conscious way. Putting your wealth into these funds could help you indirectly support environmental preservation.
Yet, some investors prefer a more direct approach, such as “impact investing”. This strategy involves investing in specific companies that offer solutions to individual environmental or social issues. For instance, you might invest in a business that is developing new methods to improve the efficiency of solar power.
The impact investing sector has been growing and is expected to continue to do so in 2025 and beyond. According to the Business Research Company, the global impact investing market is expected to grow from $548.31 billion in 2024 to $631.7 billion in 2025. Projections suggest that by 2029, it could be worth $1288.07 billion – an annual compound growth rate of 19.5%.
Impact investing could be attractive because you may be more likely to see direct, measurable results if the companies you invest in are successful. Additionally, if you back startups that go on to become very profitable, you could generate significant returns. On the other hand, you may adopt more risk than you would with an ESG fund because you might be investing in a smaller number of companies. That’s why it’s important to make impact investments part of a well-diversified portfolio, and we can support you with this.
3. A continued upward trajectory for sustainable assets despite political turmoil
The future of sustainable investing may appear uncertain after Donald Trump was elected for a second time in the US. The new president is publicly opposed to green initiatives and has already pulled the US out of the Paris Agreement – an international treaty on climate change.
Under the Trump administration, it could be likely that ESG considerations will be limited in federal contracts. There may also be more legal challenges involved with sustainable practices as the anti-ESG movement is emboldened by a government that supports its position.
The new president removed all restrictions on drilling for oil immediately after taking office too. This could affect the prevalence and profitability of renewable energy in the US in the coming years.
As a result of this shift away from sustainability in the US, you might be worried that there will be fewer opportunities for green investing in the future.
Fortunately, this may not be the case. While political turmoil could affect the sustainable investing market, to some extent, the behaviours of investors and businesses are very powerful.
There is still an appetite for sustainable investing, and businesses recognise that consumers are increasingly concerned about environmental issues. As such, whether they’re doing it for ethical reasons or simply because it makes good business sense, companies may be likely to continue supporting green initiatives.
Indeed, according to Newsweek, a recent survey from the US Sustainable Investment Forum found that 73% of respondents expected the sustainable investment market to grow in 2025.
Get in touch
If you’re interested in sustainable investing, we can help you build a portfolio that’s aligned with your values.
Please contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
