Singapore:
16 Raffles Quay, Hong Leong Building, Singapore 048581
Phone: +65 3106 1211
Phone: +65 3106 1211
Luxembourg:
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Phone: +35 2 2848 0804
Phone: +35 2 2848 0804
Global sustainable fund flows are expected to face headwinds in early 2025, with industry analysts projecting potential net outflows of about USD 8.6 billion in the first quarter. Nevertheless, total ESG fund assets are forecast to remain steady at roughly USD 3.16 trillion, underscoring a structural reorientation within institutional asset allocation towards sustainability. Forecasts suggest ESG-focused investments could reach USD 33.9 trillion by 2026.
Institutional momentum is reinforced by consumer trends, with 76% of buyers indicating they would boycott companies neglecting environmental concerns. Alongside regulatory drivers, these dynamics are set to make sustainable investment strategies essential for investors seeking both performance and long-term impact in the year ahead.
As of the end of Q3 2024, global sustainable fund assets stood at USD 3.20 trillion (EUR 3.05 trillion), up 8% year-on-year. Quarterly flows showed volatility: Q3 saw USD 9.02 billion (EUR 8.59 billion) in inflows, with preliminary Q4 data pointing to a stronger recovery. Europe maintains its dominance, holding 84% of global sustainable assets, while the US market has experienced nine consecutive quarters of outflows, reducing its share to 11%.
Performance indicators remain favourable. In 2023, sustainable funds delivered median returns of 12.6%, outpacing traditional funds at 8.6%. ESG-aligned companies often demonstrate operational efficiency, robust risk management, and strong innovation capacity—factors that support shareholder value creation.
The regulatory landscape entering 2025 is evolving rapidly. In the United States, fragmented policies are creating a patchwork of compliance challenges, with California mandating rigorous climate disclosures while several states enact ESG-restrictive measures. The European Union is refining its Corporate Sustainability Reporting Directive and tightening anti-greenwashing legislation. The United Kingdom is progressing with Sustainability Disclosure Requirements aligned to international standards, and China’s phased rollout of Corporate Sustainability Disclosure Standards targets full compliance by 2030.
These changes will require institutional investors in 2025 to adopt robust compliance frameworks that integrate both financial and environmental considerations.
In 2025, clean energy technologies are projected to attract USD 2.21 trillion (EUR 2.10 trillion) in capital, with solar power expected to draw USD 450.86 billion (EUR 429.39 billion) and battery storage USD 65.12 billion (EUR 62.02 billion). Nuclear energy investment is forecast to be 50% higher than five years ago, reaching USD 75.15 billion (EUR 71.57 billion).
Natural capital financing reached USD 102 billion in 2024, an eleven-fold increase since 2020. Circular economy frameworks continue to gain traction, with USD 400 billion mobilised for projects that optimise resource use and reduce waste.
By 2030, adaptation investment totalling USD 1.72 trillion is projected to yield USD 6.77 trillion in net benefits. Such allocations will address the physical climate risks facing infrastructure and property assets.
European green bond issuance reached USD 470.40 billion (EUR 448 billion) in 2024, with premiums narrowing and disclosure strengthened under the European Green Bond Standards.
In 2025, artificial intelligence, IoT, and blockchain are set to advance ESG data collection and reporting, enhancing transparency and ensuring verification integrity.
In the coming year, integrating ESG considerations into investment processes will be essential. Companies with strong ESG performance are positioned to realise benefits such as reduced compliance costs, enhanced operational resilience, and improved stakeholder trust. Over the past decade, 58.8% of sustainable funds have outperformed traditional peers.
At Merifund Capital Management Pte. Ltd., ESG integration is a core pillar of portfolio construction. Our approach employs climate scenario analysis, environmental stress testing, and non-financial risk dashboards to align regulatory compliance with performance optimisation, supporting clients through varied market cycles.
As of December 2024, sustainable investing is transitioning from a niche approach to a cornerstone of structured portfolio management. Market resilience, evolving regulation, and technological innovation are converging to create opportunities that extend beyond ethical considerations. For institutional investors aiming to enhance financial resilience and strategic planning, ESG integration is set to be a defining capability in 2025.
