Six trends shaping the sustainability agenda in 2025 and beyond

The world around us is changing fast. From ageing populations and rising global temperatures to material breakthroughs in healthcare and artificial intelligence (AI), we are seeing big shifts that are reshaping how we live, work, and invest.

We see these changes not just as challenges, but also as opportunities. Sustainable investing is about finding great businesses whose financial success is linked to solving real world problems, whether it is improving healthcare, building cleaner energy systems, or helping communities adapt to climate change.

Our new report looks at six key sustainability themes we see shaping the rest of the year and beyond.

1. Shifting demographics are creating both social challenges and investment opportunities

As the global population ages, retirees will need better health and social care options.

The healthcare sector is already embracing these changes; technology is transforming healthcare by enabling earlier disease detection, minimising human error, and streamlining administrative tasks – contributing to better patient outcomes and lower overall costs.

Despite a mixed picture for valuations, companies focused on these areas are well-positioned to benefit.

2. Underappreciated ESG risk

Historically, companies with strong ESG credentials have been viewed as higher-quality investments, often commanding a valuation premium due to their superior risk management and long-term resilience. However, over the past year, this ESG premium has nearly disappeared – posing a headwind for sustainable investment returns over the past 18 months.

Ultimately, we believe ESG is still materially relevant to company performance. If the ESG valuation premium stays low, this creates a unique opportunity for sustainable investors to build portfolios of resilient, lower-risk companies at market-level valuations – effectively gaining long-term risk protection at no extra cost.

3. How AI is transforming the electrification industry

The electrification industry is at the forefront of what many are calling the next industrial revolution, driven by two pivotal shifts: the global energy transition and the rapid rise of AI.

As AI infrastructure expands, optimisation will emerge as a key priority alongside resilience and reliability. Major growth opportunities lie in date centres, energy efficiency, grid management, transmission and distribution, and electric utilities.

4. Adapting to the impacts of climate change

While climate finance has traditionally focused on mitigation (reducing emissions), there is growing emphasis on adaptation – preparing for and managing the impacts of climate change.

Our analysis shows that many investors overlook the physical climate risks companies face and their financial implications.

We see three sectors offering climate adaptation solutions with particularly strong growth potential; insurance, water management and smart grids.

5. Sustainability-linked capital expenditure is experiencing substantial growth

In 2024, the market for green, social, sustainability, and sustainability-linked bonds (GSSSB) reached a new high, with total issuance surpassing $1trn.

With lending terms for these types of bonds explicitly linked to the use of proceeds, capital raised via these bonds will almost certainly be directed towards sustainable development projects.

6. A growing toolbox of sustainable finance solutions

To adapt to a volatile macroeconomic environment and future-proof sustainable portfolios, we’ve leveraged the significant growth in investable sustainable companies since launching our first portfolios in 2012.

Over the past three years, this broader universe – spanning more sectors and stages of economic development – has enabled us to collaborate with fund managers to design and launch new sustainable strategies with complementary factor exposures.

Coming of age

In a world facing economic uncertainty, political disruption, and accelerating environmental challenges, sustainable investing has never been more vital or more promising.

Yes, the macro environment has shifted. ESG premiums have narrowed, and political narratives have drawn attention away from long-term sustainability goals. Yet these headwinds also present an opportunity. Markets are currently under-pricing ESG risks and undervaluing the companies building resilience, efficiency, and innovation into tomorrow’s economy.

Our portfolios are now more diversified, and more risk-aware than ever before. With valuations at compelling levels and exposure to the fastest growing structural trends, these portfolios are positioned not only to weather volatility but to thrive beyond it.

This is the moment to lean into the future. Sustainable investing isn’t just an ethical stance; it is a forward-looking investment strategy. And for those who stay the course, we believe the rewards being financial, societal, and environmental will be worth the wait.