ESG investing is a relatively small part of the investment market and it’s constantly evolving as it adjusts to challenges and investor expectations. So, what trends could affect ESG investing in 2025? Read on to find out.

ESG investing means you consider non-financial factors when deciding how to invest your money. The factors are split into three broad categories – environmental, social, and governance.

Importantly, ESG investing doesn’t discount the financial performance of companies when deciding how to invest. The potential returns are still considered alongside ESG issues. So, it’s about balancing your financial goals with your values.

Here are some of the key trends you could see emerge in ESG investing in 2025.

1. More businesses will produce corporate sustainability reports

More companies are expected to start producing corporate sustainability reports, which would detail their environmental and social performance. In the reports, businesses may detail how they’re meeting regulatory requirements, setting ESG-related goals, and the progress they’re making.

Some of this increase will be down to new regulatory requirements.

For example, the EU’s Corporate Sustainability Reporting Directive means that companies who meet two of the following criteria will start reporting this year:

• Have a turnover exceeding €50 million
• Have a balance sheet total of more than €25 million
• Employ more than 250 people on average over the year.

For many of these businesses, it’ll be the first time they publish a corporate sustainability report.

Similarly, other countries are mandating the disclosure of sustainability data, including Australia and Singapore.

While greater reporting can be a good thing, it can also present challenges for an investor. For instance, reviewing information can be time-consuming and you might be unsure how reliable the claims are.

2. ESG funds will start to change their names

One of the challenges of embracing ESG investing is that terms haven’t been clearly defined. So, you might see funds labelled as “green”, “sustainable”, “responsible”, or “ESG” but their criteria could be very different, and some might not match your ESG goals.

For instance, you might assume that a fund that has “green” in the name wouldn’t invest in fossil fuel companies, but this isn’t always the case.

This will slowly start to change in 2025.

EU funds that use ESG-related terms in their names will need to meet minimum standards. It’s expected that between 30% and 50% of EU ESG funds will change their name in the first half of 2025. Other funds will need to make changes to their investment objectives and portfolios to retain the ESG terms in their names.

The UK is also making changes to how sustainability terms are used and four new investment labels are set to be introduced in 2025.

3. Governance will grow in importance

When you think about sustainable investing, it might be environmental factors that come to mind first. However, governance is going to become more important than ever in 2025.

The governance pillar of ESG covers issues around how a company is run. That might include shareholder structure, risk management, board diversity, and tax strategy.

A FT Adviser report found that environmental and governance issues were tied in their level of importance when they surveyed investors. In fact, transparency and disclosure was rated the number one ESG issue, with 60% of investors stating it was important to consider when investing.

Companies with strong governance policies are in a better position to improve their environmental and social practices. So, a greater focus on this area of ESG could lead to positive outcomes.

4. The artificial intelligence debate will continue

Artificial intelligence (AI) has been a hotly debated topic in 2024, and it presents some interesting questions for ESG investors.

According to a government study, around 1 in 6 businesses were implementing at least one AI application in 2023. Given the growth of AI since then, it’s likely more businesses have adopted the technology in some way in 2024.

So, what does this have to do with ESG? On the one hand, AI could be used to help combat ESG challenges, such as managing climate change by helping to design energy-efficient buildings or low-emission transport routes.

However, it also poses risks. To start, AI data centres require a huge amount of energy, which might threaten commitments companies have made to lower carbon emissions.

In addition, AI could pose some governance challenges. For example, AI might increase a company’s risk of copyright infringement or privacy breaches.

Contact us if you’re interested in ESG investing

If ESG investing is something you’d like to incorporate into your investment strategy or you have questions, please get in touch. We could work with you to create an investment strategy that suits your needs and aligns with your values.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

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.