The Future of ESG Investing (2024)

ESG assets will hit $50 trillion by 2025, representing more than a third of the projected $140.5 trillion in total global assets under management, according to Bloomberg.

Bloomberg Media's Sustainable Future Study, sponsored by Mubadala, delivers a comprehensive global view of the sustainable investing landscape, and what to expect by the end of the decade, based on our survey of nearly 800 business decision makers.

Globally, our research finds broad alignment across global markets that sustainable investing is a high priority for fund managers today and in 2030. Around the world, fund managers are convinced of the link between ESG and a company's shareholder value, and this link is a key input for investment decisions.

Global business leaders across all industries anticipate strong growth in ESG assets, and they are making investments in ESG with the same bottom line-driven focus as their non-ESG investments. A resounding 71% of global business leaders believe that, “Eventually, no investment decisions will be made without considering ESG.”

While the study finds great enthusiasm for ESG investments, the lack of defined standards to assess performance is a barrier to investment in this sector. This focus on clearly defined standards marks a significant change in the sustainable investment landscape, where, historically, high cost and fees had been the main barriers to investment.

According to the study, 32% of all respondents believe that renewables and clean energy yield the highest ROI today, and the same number believe this will be true for 2030—the highest value for any investment area.

But investors may be too focused on the most obvious ESG investments, and could be missing an opportunity to take a more holistic approach to sustainable investing.

At 27%, ESG fund managers see the highest ROI opportunity today in Financial Services, compared to 10% of Chief Sustainability Officers, 7% of government officials, and 13% of non-ESG fund managers.

Venture capital leaders stand out for their confidence in Life Sciences Tools and Services (16%) and Mobility (10%).

When we break down ESG and evaluate which element contributes most to shareholder value, Environmental carries the bulk of the weight today, and Renewables and Clean Energy receives the highest portfolio allocations.

BloombergNEF estimates that $2.1 trillion of investment is needed in the energy transition from 2022-25, nearly three times last year’s level. In addition to renewable energy projects, this figure includes electrified heat, energy storage and nuclear power.

But while the world feels dominated by the Environmental factors in ESG investing today, our study shows increasing consideration of the Social factors that evaluate a company’s impact on customers, employees, local communities and society in general. By 2030, many investors believe that Social will contribute more to shareholder value than Environmental.

The global momentum behind ESG contributing to shareholder value is undeniable. ESG is a decision-making factor across all investments, not just ESG-oriented investments, and investors need to widen their view of sustainable investing. As our study shows, there are many opportunities for increased ROI in sectors not traditionally associated with sustainability. Any organization or country that ignores ESG risks being left behind.