Can investors earn more by looking to ESG investments in 2025?

Is it possible for investors to earn more money by emphasising environmental, social, and governance investing in their portfolios? It appears that reports of a slowdown in ESG initiatives may be wide of the mark. 

Although the return of the famously ESG-sceptical US President Donald Trump to the White House has contributed to suggestions that more investors are divesting in assets with a focus on renewable energy, equal opportunities, and community growth. 

Despite this, the global value of ESG assets is still expected to rally to between $35 and $50 trillion by 2030, according to Priya Parrish, an Impact Engine Chief Investment Officer and lecturer at the University of Chicago. 

This suggests that short-term negative sentiment towards environmental, social, and governance investing appears to amount to nothing more than noise when adopting a more long-term mindset. 

In 2024, global investment in clean energy reached an all-time high of $2 trillion, which amounted to double the investment received by fossil fuels. As a result, renewable energy, electrification, and energy efficiency are leading market themes, with solar alone receiving $500 billion of investment, while electric vehicle (EV) sales climbed to over 17 million units—a figure that amounts to 20% of all new car sales globally. 

This continued investor interest in ESG-related investments indicates that markets still believe that environmental, social, and governance initiatives are intelligent long-term bets. 

While some critics dismiss ESG investment strategies as greenwashing, overhyped, or even woke, regions like Europe and Asia are seeing exceptional levels of capital flowing into sustainable assets. But could they make investors' money? 

The resilience of ESG

Despite political challenges emerging in the United States, Morgan Stanley data suggests that 88% of investors worldwide continue to express an interest in sustainable investing, with 99% of Gen Z and 97% of Millennials providing the most support. 

Additionally, 59% of investors who plan to increase their sustainable investments in the next year are confident in generating profit from their selections, while more than 80% believe it’s possible to achieve financial gains while focusing on ESG outcomes. 

ESG investing naturally aligns with many existing financial strategies due to the correlation between companies with strong environmental, social, and governance credentials generally offering more resilience and an ability to attract long-term investors while delivering consistent competitive returns. 

Because investing ethically can span ISAs, pensions, and other general investment accounts, there are plenty of ways for individuals to build their exposure to ESG strategies, opening the door to more flexible forms of wealth building. 

Historical outperformance

Sustainable funds have a history of outperformance compared to their more traditional counterparts over long periods, with Morgan Stanley data suggesting that a hypothetical investment in a sustainable fund in December 2018 would have returned $136 in December 2024, while the same investment over an identical timeframe in a traditional fund would have totalled $131. 

Although ESG investing underperformed its benchmark in 2022 and 2023 after significant outperformance around the time of the pandemic, recent months have shown signs of a resurgence, with Q1 2025 data suggesting that large-cap sustainable funds grew 2.09% on average while the MSCI ACWI large-cap index recorded a loss of 1.58%.

There’s also tangible evidence that recent ESG underperformance can be attributed to the impact of the flare-up of geopolitical conflict in Ukraine, the pullback of leading stocks during the pandemic, and the emergence of the speculative Magnificent Seven stocks on Wall Street. 

Opportunities in the energy sector

One of the brightest causes for ESG investors to maintain their long-term strategies can be found in the conducive market conditions for transformation throughout different sectors, such as energy. 

With growing global regulatory support for renewable energy outside of the United States, coupled with decreasing costs associated with solar, wind, and battery-storage solutions, decarbonisation initiatives are expected to continue to build momentum in the years to come. 

The International Energy Agency anticipates that by 2040, over half of all electricity will be supplied from low-carbon sources. 

Growing demand for electrification of transport and industry will generate greater funding that’s supported by green bonds and green loans, opening the door to more widespread market growth. 

While greenwashing will remain a danger for unwitting investors, companies that focus on ESG initiatives will more naturally align themselves with investor goals, gaining a competitive advantage when attracting more speculative capital inflows. 

Closing thoughts

The future of ESG investing opens the door to continuing a historical trend of creating stronger financial returns for investors while maintaining the positive environmental and social outcomes that investors crave. 

Despite President Trump’s scepticism of environmental, social, and governance considerations in the United States, the continued emergence of sustainable technologies and global initiatives is expected to inspire investors, with younger generations appearing considerably more receptive to sustainable investment opportunities. 

The future appears bright for ESG investing, but investors must do their homework before building a sustainability-focused portfolio. Like with all investment strategies, ESG stocks will always deliver winners and losers.