ESG Investments Bloom, In Line To Hit US$186tn by 2035

The landscape for ESG investing has reached critical mass. Market analysis by S&S Insider found that the sector was valued at US$37.8tn in 2025 and is projected to expand to US$186.9tn by 2035. 

This growth is turning ESG from a niche option into a main strategy for the world’s largest pension funds, insurance companies, and sovereign wealth funds.

From voluntary claims to mandatory disclosure

The main driver of this market growth is the shift of ESG from voluntary to mandatory.

New rules in the UK and EU, along with the United States Securities and Exchange Commission's climate disclosure rules, have created a large volume of data that analysts were previously unable to access. 

These regulations require major public companies to report on major climate risks and their Scope 1 and 2 emissions in annual reports.

The rise of transition finance

A major strategy shift is toward transition finance. Instead of just avoiding high-emission industries, asset managers are now investing in them to help sectors like steel, cement, and chemicals reduce their emissions. 

For example, BlackRock’s Transition Capital platform, launching in 2026, aims to invest US$50bn in industrial decarbonisation. This approach uses ESG as an active driver of change in industries, rather than a filter.

“While the shares of traditional fossil fuel producers have rallied strongly since the outbreak of war, these businesses remain structural losers relative to the growth in electrification, where demand is rising 2.5 times faster than overall energy use,” writes Alexander Laing, Analyst and Portfolio Manager at investment manager Fidelity International. 

“By around 2030, natural gas demand for power is expected to plateau as renewables and nuclear energy supply more than half of global electricity generation, while the electrification of transport and industrial processes – such as the substitution of traditional steel blast furnaces with electric arc furnaces – only adds further pressure. 

“This suggests that investors may need to consider renewables as their energy hedge, rather than fossil fuels or ‘traditional’ energy indexes.”

Fixed income and the green bond surge

Green bonds are now the fastest-growing type of investment, with an expected annual growth rate of 23.8% through 2035. The creation of government green bond yield curves in the UK, France, Germany and Italy has helped set reliable prices for companies. 

Green bonds let big investors meet sustainability goals without giving up the usual returns of fixed income. This match between what issuers offer and what investors want has made the market more active in Europe and North America.

“Our latest Sustainable Signals survey shows that performance continues to be the top driver of individual investors’ interest in sustainable investing as they look to achieve both market-rate returns and real-world impacts,” writes Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley. 

“Looking ahead, a majority of individual investors see greater opportunity for sustainable investments in private markets, especially for portfolio diversification and investing in innovation.”

Regional dynamics and political hurdles

North America and Europe are still the main players in the ESG market, but they are taking different paths.

In the US, the market faces political challenges, but large investors are sticking with ESG. This shows that long-term investors still see climate risk as financially important, even if politics change in the short term.

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Europe, meanwhile, leads the way with rules such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Taxonomy, and sustainable fund assets there topped US$5.8tn by 2024. 

Nature-based assets and technical maturity

The next big step in the coming decade is the rise of nature-based investments as a recognised asset class. With support from the Taskforce on Nature-related Financial Disclosures (TNFD), more institutional capital is flowing into biodiversity credits and sustainable land-use funds. 

At the same time, AI-powered analytics are helping reduce the market’s past dependence on inconsistent self-reported data. These technical improvements make ESG scoring more accurate and timely, helping address greenwashing concerns and providing a stronger basis for the projected US$186tn market.