MSCI: 6 Sustainability & Climate Trends to Watch in 2025
Energy transformation presents “one of the most significant investment prospects of our time”, according to experts from investment data and analytics company MSCI.
The firm has published ‘6 Sustainability & Climate Trends to Watch in 2025’, aiming to forewarn and guide investors in the coming year.
In the foreword, Laura Nishikawa, MSCI Head of ESG and Climate R&D, writes: “The latter half of this decade will bring profound shifts, driven by geopolitics, disruptive technology breakthroughs and environmental challenges.”
Laura adds that the report does not focus on the rising tide of regulation this year, because “an intense focus on compliance and disclosure runs the risk of overshadowing the critical investment opportunities and challenges we’re here to address”.
The overview
Unsurprisingly – and consistent with other end-of-year reports across the sector – the report lays out a challenging and complex environment ahead.
Laura says: “Investors will need to contend with the sweeping effects of the energy transition on users and suppliers of energy, the escalating impact of climate-related events and new risks associated with the widespread adoption of AI across every sector of the economy.”
But she remains positive, adding: “Such unprecedented change brings unprecedented opportunity.
“The energy system transformation presents one of the most significant investment prospects of our time, with strong returns anticipated by many investors in low-carbon energy, green transportation and energy storage solutions, especially in private markets.”
Despite not focussing this year on compliance and disclosure rules, Laura says MSCI will continue to monitor sustainability and climate regulations.
“But ultimately, our mission remains focused on tackling the pressing, real-world investment challenges that drive your long-term success.”
The report goes on to highlight the six sustainability and climate trends to watch.
1 – Hunting for energy transition solutions
Ongoing uncertainty is prompting investors to move their focus to the energy transition – but they need direction on where to invest.
The report says: “ Global investors are increasingly realising that their net-zero portfolio targets may be slipping out of reach without accelerated progress in the real economy.
To keep pace, many are shifting their focus to the energy transition.”
It adds: “Despite renewed commitments at recent global climate conferences to triple renewable-energy capacity and double energy efficiency, there is much uncertainty as to how, where and how quickly that might happen.
“And while publicly traded companies focusing on clean tech, green buildings and renewable energy saw a surge in valuations in 2020 and 2021, they have struggled to maintain that momentum.”
2 – Facing climate change reality
MSCI says 2025 “may signal a shift in how investors approach the risks and opportunities associated with climate adaptation”.
The report adds: “It’s an uncomfortable reality that adaptation needs to be considered alongside transition.
“The lessons of the past year have shown that precise location data can help investors understand today’s risks much more clearly.”
It says that increasingly frequent extreme weather events will make effective risk management ever more important.
“As a changing climate drives a need to adapt and build resilience, solutions companies may offer an opportunity for investors in equity markets.”
3 – The changing shape of sustainability risk in global equity markets
Risk today is very different to risk 10 years ago – and it will be very different again in a decade.
That is MSCI’s fluid conclusion as it considers sustainability risk in global equity markets.
The report says: “The rise of the tech giants and their supporting players has pushed other sectors to the side and shrunk their weight in market-cap indexes.
“And the aggregate sustainability-risk landscape for investors in the broader equity market has changed markedly as a result – a fact best not overlooked given long-running evidence of how much these risks can affect financial results.”
It says social risks are carrying more weight, driven by a “significant tilt toward information technology, where matters of human capital and privacy and data security loom large”.
4 – Gen AI: the data buffet is closing
Is AI about to face a reckoning?
While more companies are investing heavily in AI, investors and regulators are likely to be “less bullish”, MSCI says.
“As we move beyond the initial hype phase, the pressure for companies to deliver a return on their investment is growing, as are demands for transparency and responsibility.
“And one of the biggest potential obstacles to success might also be one of the least expected — data. We’re generating the stuff at a rate of hundreds of millions of terabytes every day, after all. That sounds like an all-you-can-eat buffet for AI models.”
However, MSCI warns that, as the “free-for-all” ends, it will start to become apparent who has been building on a sound foundation and who has been taking short cuts.
“For the next wave to flow, companies may need to show their investors that their data foundations (quality and access) are solid.”
5 – The silver ballot?
MSCI says: “Something unexpected happened in the 2024 proxy season. Shareholders flexed their muscles, making a big play to expand their own rights through a virtual landslide of proposals seeking binding majority voting for directors.”
It adds: “Shareholders in US companies seem to have decided they’d had enough and it was time to move their investees’ governance practices closer to what they see in other markets.”
MSCI says it cannot be sure if the groundswell will continue, but “it may turn out that the 2024 season was only the beginning”.
6 – 2025: a turning point for carbon markets?
The voluntary carbon credit market has been sailing in choppy waters in recent years, fuelled by issues including SBTi’s decision to advocate the carbon offsets market.
MSCI says: “The previous strong growth in the number of transactions and prices has given way to a new phase in which the quality of certain credits has come under scrutiny, and volumes and pricing have largely gone sideways. But this could all be on the cusp of change.”
It says the realisation of the need to shift to a lower-carbon economy is bringing about a gradual improvement in the quality of the market.
“New sources of demand are also emerging, such as via the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) scheme.
“The year 2025 may, therefore, be a turning point for the market.”
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