Emerging Trends: ESG Investing and the Rise of Sustainable Portfolios

Ujjwal Maheshwari, June 2, 2025

In recent years, ESG (Environment, Social, and Governance) investing has become a global financial and social phenomenon. As of 2025, ESG assets will become one-third of all assets under management globally, rising over $50 trillion.

In this article, we’ll discuss the rise of ESG, its meaning and importance, and some of the criticism that has emerged. The trend is closely connected with the rising interest in cryptocurrencies and their acceptance by mainstream finance and small-time investors. It’s also a generational trend, especially influenced by young investors and business owners.

What’s ESG?

ESG simply refers to the investment trend in which for-profit investors place their assets into companies and ventures that are aware of the environmental and social impact and that are working in a way that promotes energy efficiency, employee welfare, and ethics in company governance.

These investments are still made with profit in mind, and their main goal is to generate wealth, but in a way that’s consistent with these values. The continued growth of ESG investments shows that sustainable practices aren’t only ethical but also financially prudent.

The Growth in ESG

ESG investments are experiencing momentum across the globe and all industries. At this point, 81 per cent of assets in the US are employing some sort of ESG integration strategy. Globally, 64 per cent of institutional investors integrate ESG factors into the way they select assets.

The shift is especially noticeable with young entrepreneurs. Approximately 72 per cent of millennials claim to prioritise ESG investments, and so do 80 per cent of Gen Z-ers. These two groups are underrepresented in asset ownership, but as they become a bigger part of the market, their values will have to be represented as well.

The Role of Cryptocurrencies

Companies that have led the way when it comes to ESG investing are cryptocurrencies. They have started as niche assets, used for Litecoin casinos or similar endeavours, and they’ve grown and changed to become a widely recognised form of asset, held by millions of investors.

Cryptos have been acutely aware of their effect on energy consumption and, therefore, sustainability, which has made them an important player in ESG momentum. They were also mostly used by younger investors who are willing to accept novel technology. Now, when cryptos are widely accepted, so is ESG as a factor in choosing how to allocate resources.

Emerging Trends in ESG Investments

As ESG became more common and more precisely defined, a few trends emerged within it that have shaped the industry and the public attitude towards it. These include:

Regulatory Development

Regulatory development is changing in order to provide transparency and accountability when it comes to making ESG investments. The EU is leading the way with this regulation, as it often does in other areas, with the introduction of the Corporate Sustainability Reporting Directive (CSRD).

Similarly, the UK has established the Sustainability Disclosure Requirements (SDR), and the US will align its regulations in this area with the standards set by the Sustainability Standards Board (ISSB).

Technological Integration

Technological integration, especially the introduction and popularisation of AI, has changed ESG assessment. As of 2025, approximately 40 per cent of all investors are using AI to assess and compare the data about carbon footprint before investing in a company.

These innovations allow investors to access more accurate data and cut through the red tape that would otherwise slow down the investigation of ESG practices. Given that there are more companies interested in ESG practices and that the data involved is getting more complex and technical, AI will certainly play an even more important role in the years to come.

Focus on Social Impact

ESG discussions often revolve around environmental factors, but that’s only one part of a larger agenda. Recently, the social impact of companies has been taken into account more than ever, and it has affected how companies approach their social impact.

This is most noticeable in making sure that a business has an open and tolerant work environment for employees of all races, nationalities, religions, and creeds. Companies also need to adhere to standards when it comes to labour laws and the right of employees to form unions.

Challenges and Criticism

The implementation of ESG investing practices isn’t without its faults, challenges, and criticisms. These have come from those who oppose the ESG principles and those who champion them and believe that the trend isn’t going far enough.

Greenwashing

Some companies have been accused of greenwashing, as they’ve tried to present their efforts as more ecologically friendly than they are. For instance, a British investment fund publicly claimed to be dedicated to ESG investment practices while holding over $33.5 billion in major fossil fuel companies. Incidents such as this show how important stricter regulations are for the success of ESG investing and corporate accountability in general.

Disparities in Performance

The financial performance of ESG companies was also under scrutiny and criticism. In the second half of 2024, the funds that operate under the ESG agenda have provided a median return of 0.4 per cent. Traditional funds have had a median return of 1.7 per cent in the same period. This has caused a wide debate about the financial viability of ESG.

Political and Economic Backlash

ESG has caused a political and economic backlash, especially so after the reelection of Donald Trump. However, similar backlashes also occurred in the UK. The criticism usually states that business decisions should be made based on market forces and principles rather than choosing companies to invest in based on their ideological background.

A Pursuit of Standardisation

Since ESG is practised worldwide, in different industries and different regulatory markets, it’s been getting difficult to determine what ESG standards are. This can be addressed and fixed in environmental regulations first and foremost, as those include metrics that can be easily identified and measured. Ethical and labour concerns are somewhat more difficult in this regard.

Standardisation across the globe and in different industries would greatly help ESG investors choose funds and companies that are worth pursuing, but there are many legal challenges in accomplishing it.

Outlook for the Future

ESG will continue in the future, and it will be even more integral to global finance. This is the case regardless of the criticism and the backlash towards it, since it’s mostly a generational change that depends on the new outlook younger investors have towards the companies they invest in.

Companies that prioritise ESG principles also have a marketing and branding benefit that can’t be precisely calculated in all cases, but that many companies consider to be worthwhile.

Conclusion

ESG investing refers to the practice of investing in companies that prioritise environmental concerns, sustainability, and fair labour practices. It’s already become widely used by investors as a criterion for choosing which companies to invest in. This became even easier to do with the use of AI and other modern technology used to verify the environmental impact a company is having.

Criticism of ESG has also emerged both on political grounds and in terms of the financial variability of the efforts. It will continue to be an important part of international finance regardless of these criticisms.