Environmental, Social and Governance (ESG) Market Size (2025 – 2030)

The Environmental, Social, and Governance (ESG) Market was valued at $18.26 billion and is projected to reach a market size of $45.05 billion by the end of 2030. Over the forecast period of 2025-2030, the market is projected to grow at a CAGR of 19.7%. 

ESG investing, for Environmental, Social, and Governance, is a method of investment that analyzes businesses in terms of environmental responsibility, social responsibility, and governance quality. ESG has become particularly popular as more investors look to make their portfolio investments align with the values of sustainability and ethics. Environmental considerations are measures of the firm's contributions to the well-being of the planet, such as carbon footprints and natural resource consumption. Social factors consider how a firm handles relationships with workers, vendors, customers, and societies. Governance encompasses leadership, executive compensation, audits, internal controls, and shareholders' rights. Growing awareness of climate change, social justice, and corporate responsibility underlies the surge in ESG investing. Investors can now access vast amounts of ESG data, scores, and analysis that allow for better-informed investment decisions. This openness has been supported by the emergence of ESG data providers and rating agencies, making it easier to compare companies' ESG performance. In addition, ESG efforts support sustainable business over the long term by putting mechanisms in place to deal with a company's environmental impact and stakeholder engagements. With ESG considerations integrated into investment processes, they not only represent moral obligations but also become gauges of future financial performance and risk management.

Key Market Insights:

As per the International Energy Agency (IEA), a Paris-based institution offering analysis, policy advice, and data on the world energy sector, energy investments reached USD 1.9 trillion, 10% more in 2021 than in 2020 

Moreover, a growth of 13% is foreseen by industry experts with special emphasis on the uptake of the software during the analysis period.

In November 2023, Nasdaq launched Nasdaq Sustainable Lens, a SaaS-based AI solution aimed at assisting firms and investors in utilizing ESG information from thousands of firms. The solution provides access to sustainability-related disclosures by more than 9,000 firms, allowing the summarization of data and stakeholder queries to be addressed. It also allows users to compare disclosures with reporting standards as well as other firms, serving as an AI-powered ESG assistant, automating tedious research activities.

Environmental, Social and Governance (ESG) Market Key Drivers:

Investor Demand for Long-Term Financial Returns.

One of the main drivers of ESG investing is the quest for sustainable financial performance. In a Schroders study, 64% of institutional investors identify financial returns as the primary motivation for investing in sustainable strategies. Investors understand that firms with good ESG practices tend to have improved risk management and resilience, resulting in more stable long-term returns.

Regulatory Developments and Disclosure Requirements.

Regulatory authorities and governments across the globe are enacting policies requiring ESG disclosures and sustainable practices. For example, India's Securities and Exchange Board (SEBI) is examining ESG disclosure requirements for listed companies to provide accurate information and avoid mere compliance. These regulations increase transparency and accountability, promoting companies to use strong ESG frameworks.

Technological Innovations Improving ESG Analysis.

Technological innovations, such as artificial intelligence and big data analytics, are transforming ESG investing. Such technologies help provide a more accurate analysis of ESG metrics so that investors can gauge companies' sustainability performance effectively. Better analysis of data helps inform investment decisions and encourages the incorporation of ESG considerations in mainstream financial analysis.

Environmental, Social, and Governance (ESG) Market Restraints and Challenges:

Overcoming the Complications and Main Challenges Stunting ESG Market Development.

Although there is a growing focus on Environmental, Social, and Governance (ESG) principles in international investment approaches, the ESG market has several major challenges that hinder its smooth integration and effectiveness. One of the main hindrances is the absence of harmonized ESG reporting guidelines. Businesses tend to struggle with various, sometimes divergent, guidelines, which complicate the creation of consistent and comparable ESG reports. This inconsistency undermines investors' capacity to evaluate and compare ESG performance across organizations, resulting in the possibility of misinformed investment choices. Issues of data quality and transparency add to the challenges of the ESG environment. Most companies only disclose selected ESG-related information, and the lack of compulsory reporting requirements permits incomplete or deceptive information. This lack of reliable data weakens the credibility of ESG evaluations and can contribute to greenwashing, as companies overstate their ESG activities to look more sustainable than they are. Regulatory complexity introduces another level of challenge. The ESG regulatory framework is patchy and changing, with different requirements in different jurisdictions. This patchwork of regulation presents compliance challenges for multinational businesses and investors, raising operational costs and legal risks. Additionally, the level of cost involved in deploying ESG programs can be daunting, particularly for small and medium-sized businesses. Sustainable technology investments, employee development, and reconfiguring operations demand a lot of capital, which may not reflect in the form of returns in the immediate future.

Environmental, Social, and Governance (ESG) Market Opportunities

Unleashing the Potential and New Opportunities in the ESG Market.

The Environmental, Social, and Governance (ESG) market is constantly changing, with a plethora of new opportunities waiting for investors, businesses, and policymakers willing to support sustainable development. One such opportunity is in the growth of green bonds and climate-related financial instruments. These instruments allow investors to finance ecologically sound projects and enjoy competitive returns as their financial goals converge with ecological effects. Besides, the increasing demand for ESG-compliant products and services is fueling innovation in several industries such as renewable energy, clean technology, and sustainable agriculture. The increased demand stimulates firms to adopt ESG principles in their core strategies to create sustainable long-term value and resilience. In addition, the mounting focus on corporate transparency and accountability is leading organizations to increase their ESG disclosures, thus appealing to a larger number of socially responsible investors. In emerging economies, like China and India, ESG investing is building speed, with its impetus derived from policy shifts and growing attention to environment-related and social problems. All of these also usher in fresh windows of investment and further promote the worldwide pursuit of sustainability and good governance. With an increasingly maturing ESG horizon, stake leaders who approach it proactively will be ideally equipped to implement good change and sustain development.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) MARKET REPORT COVERAGE:

Environmental, Social and Governance (ESG) Market Segmentation:

Environmental, Social and Governance (ESG) Market Segmentation: By Investment Type

• ESG Integration
• Impact Investing
• Sustainable Funds
• Green Bonds

Within different types of ESG investments, Green Bonds stand out as the most rapidly increasing category. The debt securities are specifically reserved for financing projects having positive environmental features, like clean transport, renewable energy, and energy efficiency. The green bond market has seen explosive growth, with issuances across the world crossing $500 billion in 2021. The growth is being fueled by heightened investor interest in sustainable investments and the realization that climate change represents a financial systemic risk. Green bonds provide investors with a mechanism to contribute to environmental initiatives and earn steady returns, an appeal to investors looking to realign their portfolios based on environmental concerns. Conversely, ESG Integration is the prevailing investment strategy in the ESG space.

ESG Integration is the systematic integration of environmental, social, and governance considerations into conventional financial analysis and investment decision-making. It is practiced extensively by institutional investors who believe that ESG factors have the potential to significantly affect the performance and risk exposure of a company. By integrating ESG factors, investors seek to find long-term value and reduce potential risks from environmental liabilities, social controversies, or governance failures. The widespread use of ESG Integration indicates a larger trend in the investment community toward acknowledging the financial materiality of ESG factors and their ability to generate sustainable, long-term returns.

Environmental, Social and Governance (ESG) Market Segmentation: By Investor Type

• Institutional Investor
• Retail Investors
• Corporate Investors

Institutional investors, such as pension funds, insurance companies, and sovereign wealth funds, presently account for the lion's share of ESG assets. Their substantial capital commitments and long-term investment horizons give them the power to mold corporate conduct and establish sectoral benchmarks for sustainable corporate behavior. Institutional investors incorporate ESG factors into their investment decisions to mitigate risks and keep pace with regulatory demands, thus compelling the vast majority of the financial industry to embrace ESG values.

On the other hand, retail investors are the most rapidly expanding segment of the ESG industry. The expansion is fueled by growing awareness and demand for ethical investment among individual investors, most notably the younger generations. Easy-to-use investment platforms and ESG-centered financial products have enhanced the availability and accessibility of sustainable investing to the masses. As such, retail investors are spreading their wings into the ESG market very fast, leading to the diversification and dynamic expansion of the market.

Environmental, Social and Governance (ESG) Market Segmentation: By Application

• Environmental
• Social
• Governance
• Integrated ESG

Integrated ESG is the most rapidly expanding part of the ESG industry. This method integrates environmental, social, and governance considerations into a single framework, allowing companies and investors to make more holistic and strategic choices. The demand for holistic investment decisions incorporating all the components of ESG is fuelling the growth of this segment. Through the incorporation of ESG factors, organizations can more effectively evaluate risks and opportunities, resulting in more sustainable and responsible investments. Integrated ESG growth is indicative of a larger trend toward holistic sustainability evaluation within the investment community. 

The environmental segment leads the ESG market today, with the highest revenue share. This is due to the increasing global focus on environmental sustainability and the need to combat climate change. Investors are increasingly giving precedence to companies that show robust environmental stewardship, like reducing carbon footprint, using clean energy, and adopting sustainable resource management practices. Policy efforts and customer pressure for green products only add weight to the dominance of the environmental sector. With environmental issues remaining at the forefront, this sector is likely to hold on to the top position in the ESG space.

Environmental, Social and Governance (ESG) Market Segmentation: By Sector

• Information Technology
• Healthcare
• Finance
• Consumer Staples
• Industrial

The Information Technology industry is witnessing fast-paced growth in the Environmental, Social, and Governance (ESG) space. Fueled by the rising need for digital transformation, organizations in this industry are embracing sustainable practices like the use of renewable energy sources and improving data privacy controls. Such convergence with ESG principles makes the technology sector a leader in the adoption of ESG-inclined investments. In the same way, the Healthcare industry is seeing substantial growth in ESG investments. An aging population worldwide and the increasing rate of chronic diseases are driving the demand for healthcare services. Healthcare firms are concentrating on ESG activities by enhancing access to drugs, improving patient outcomes, and adopting sustainable processes in their businesses.

The Finance industry continues to be a market leader in the ESG sector. Financial institutions are also increasingly integrating ESG factors into their investment decisions, with an emphasis on sustainable finance and socially responsible lending. This reflects not only international sustainability objectives but also investor demand for ethical investments. The Consumer Staples industry also has a considerable share in the ESG market. Firms in this industry are embracing sustainable sourcing, conserving waste, and providing ethical working conditions. These initiatives strike a chord with consumers' growing preference for socially responsible products, thus leading to increased brand loyalty and market share.

Environmental, Social and Governance (ESG) Market Segmentation: By Region

• North America
• Europe
• Asia Pacific
• South America
• Middle East and Africa

In 2024, the ESG market is characterized by clearly different regional patterns, where Europe is in the lead regarding sustainable investments, North America demonstrates a growth pattern, and Asia-Pacific is the most rapidly growing area. Europe remains dominant in the ESG market with a share of about 85% of worldwide sustainable AUM. This is due to robust regulations such as the EU Taxonomy and SFDR, which have supported investor confidence and disclosure. Climate change and carbon emissions focus in the region also correlate with ESG goals. North America, especially the United States, accounts for approximately 10% of total ESG AUM. Although there is increased interest in ESG investing, political issues, and regulatory risks have resulted in less rapid take-up than in Europe. However, the area is promising growth as institutional investors increasingly understand the significance of ESG factors. Asia-Pacific is the region with the fastest-growing ESG investments, with a 3% estimated share in 2024. China, India, and Japan are ramping up efforts to institutionalize ESG principles into their financial markets as a result of a mix of regulatory reforms and growing investor awareness. The area's accelerating economic growth and growing emphasis on sustainability account for its increasing ESG market share. Latin America and Middle East & Africa account for smaller portions, approximately 1% and 1% each.

COVID-19 Impact Analysis on the Environmental, Social and Governance (ESG) Market:

COVID-19 had a substantial impact on the Environmental, Social, and Governance (ESG) market, serving as a catalyst that reformed investor priorities and corporate strategies. In the initial market upheaval, ESG funds proved resilient, with active ESG funds outperforming their non-ESG peers, signaling the financial sustainability of sustainable investments. The crisis highlighted the need for good corporate governance and social responsibility, and companies were compelled to reassess their ESG commitments. A poll showed that 67% of global businesses confirmed that the pandemic prompted action on ESG topics, highlighting environmental issues and a call for greater risk management practices. In addition, the pandemic accelerated the embedding of ESG considerations into investment decisions, with increased investor demand and capital inflows into ESG funds. This time also emphasized the importance of social factors, including employee health and safety, in corporate performance and investor evaluation. In general, COVID-19 was a turning point for ESG investing, affirming its relevance in constructing resilient and sustainable business models.

Trends/Developments

BlackRock, an investment management company, rolled out in June 2024 a line of climate transition-conscious exchange-traded funds (ETFs) in Europe even as it avoided associating with ESG investing in the US. The fresh iShares MSCI Climate Transition Aware UCITS ETFs, being Article 8 under the EU's Sustainable Finance Disclosure Regulation, seek to expose investors to low-carbon transition leaders

September 2023: Salesforce launched new Einstein capabilities for Net Zero Cloud to make ESG reporting easier for businesses in the face of changing regulations. From 2024, around 50,000 companies, including many U.S.-based multinationals, will have to comply with the Corporate Sustainability Reporting Directive (CSRD), reporting climate-related financial risks, societal contribution, and scope of three emissions from supply chains.

May 2023: Microsoft entered into a partnership with KPMG firms to bring innovative solutions that enable business in its ESG journey. Using KPMG's heavy investment in technology and global digital solutions for ESG, they will provide clients with data-driven insights and support ranging from tracking environmental impact to implementing sustainable growth strategies.

May 2023: UL Solutions launched its ESG management portfolio, designed to enable enterprise-wide sustainability data management programs with a focus on carbon and scope three emissions. The portfolio combines proven advisory practices, software, and verification services to support all levels of ESG reporting maturity. Through this portfolio, sustainability and ESG professionals can accelerate their programs and address regulatory and voluntary reporting requirements in an evolving regulatory landscape.

Key Players:

1. Apple Inc.
2. Grifols S.A.
3. Delta Electronics
4. FIVE Holdings
5. ASML Holdings N.V.
6. Check Point Software Technologies
7. Hermès International SCA
8. Linde plc
9. Social Energy
10. Schneider Electric