Sustainable Finance Market (By Asset Class; By Offerings; By Investment Style; By Investor Type) - Global Industry Analysis, Size, Share, Growth, Trends, Revenue, Regional Outlook and Forecast 2023-2032

The global sustainable finance market size was estimated at around USD 0.56 trillion in 2022 and it is projected to hit around USD 4.31 trillion by 2032, growing at a CAGR of 22.65% from 2023 to 2032. The sustainable finance market in the United States was accounted for USD 151.7 billion in 2022.

Key Pointers

• Europe dominated the sustainable finance market in 2022 and accounted for a revenue share of more than 40%. 
• Asia Pacific is anticipated to emerge as the fastest-growing market from 2023 to 2032. 
• The equities segment dominated the market in 2022 and accounted for a revenue share of more than 49%. 
• The equity funds segment dominated the market in 2022 and accounted for a revenue share of more than 33%. 
• The active segment dominated the market in 2022 and accounted for a revenue share of over 64%. 
• The institutional investors segment dominated the market in 2022 and accounted for a global revenue share of over 79%.

Report Scope of the Sustainable Finance Market

The sustainable finance Asset Under Management (AUM) was valued at USD 37.80 trillion in 2022. The growing awareness and concern about environmental and social issues, such as climate change, resource depletion, and social inequality, is expected to boost the market’s growth. This heightened awareness has increased the demand for sustainable finance solutions as individuals, businesses, and institutions seek to align their investments with their values and contribute to a more sustainable future. Moreover, regulatory frameworks and government initiatives are playing a crucial role in driving the market’s growth.

Many countries have implemented policies and regulations encouraging sustainable investment practices, such as tax incentives, disclosure requirements, and sustainability reporting standards. These regulatory measures create a supportive environment for sustainable finance and incentivize market participants to incorporate sustainability factors into their investment decisions. Furthermore, investors are increasingly recognizing the financial benefits of sustainable finance. It is no longer seen as just an ethical choice but also a strategic one.

Sustainable investments have demonstrated competitive financial performance and risk mitigation potential, attracting investors seeking financial returns and positive environmental and social impacts. This shift in investor preferences has resulted in a surge in sustainable investment products and strategies, driving the growth of the sustainable finance industry. In addition, technological advancements and data analytics have played a significant role in driving the market. The availability of data on Environmental, Social, and Governance (ESG) factors has improved, enabling investors and financial institutions to assess the sustainability performance of companies and investment portfolios more accurately.

Technological tools and platforms have also facilitated the integration of ESG considerations into investment processes, making sustainable finance more accessible and efficient. In addition, companies and organizations increasingly recognize the importance of sustainability in their long-term business strategies. The adoption of sustainable practices not only helps mitigate risks but also enhances brand reputation, customer loyalty, and employee engagement. This corporate sustainability trend has increased the demand for sustainable finance solutions to support green projects, sustainable supply chains, and responsible business practices.

However, the market is restrained by the lack of standardized and globally recognized definitions, metrics, and reporting frameworks for sustainability. This creates challenges in comparing and evaluating the sustainability performance of different companies and investment products. To overcome this restraint, efforts are being made to develop common standards and frameworks. For instance, initiatives like the Task Force on Climate-related Financial Disclosures (TCFD) and Global Reporting Initiative (GRI) have provided guidelines for companies to disclose their sustainability-related information. In addition, collaborations among financial institutions, industry associations, and regulatory bodies are working towards harmonizing sustainability reporting requirements and promoting the adoption of globally recognized frameworks.

Asset Class Insights

The equities segment dominated the market in 2022 and accounted for a revenue share of more than 49%. Equities allow investors to actively engage in sustainable investing and support companies that demonstrate strong ESG practices. Moreover, equities offer a higher liquidity level than other asset classes in the sustainable finance industry. Investors can easily buy and sell equity securities, allowing for greater flexibility and responsiveness to market conditions. This liquidity makes equities an attractive choice for both institutional and individual investors seeking exposure to sustainable investments.

The multi-asset segment is anticipated to register significant growth over the forecast period. Multi-asset strategies offer investors diversification across different asset classes, including equities, fixed income, real estate, and alternative investments. This diversification helps mitigate risk and provides a more balanced portfolio, appealing to investors seeking a comprehensive approach to sustainable investing. Moreover, multi-asset strategies allow for flexible capital allocation to various sustainable investment opportunities.

Offerings Insights

The equity funds segment dominated the market in 2022 and accounted for a revenue share of more than 33%. The sustainable equity fund has emerged as a critical driver in the growth of the sustainable finance industry. This fund strategically invests in the stocks of large- and mid-cap companies that demonstrate strong financial performance and adhere to specific social and sustainability criteria. By focusing on sustainable business practices and considering ESG factors, the sustainable equity fund aims to achieve positive long-term capital appreciation while promoting sustainability characteristics. This fund exemplifies the increasing demand for investment options prioritizing ESG factors and aligning with investors' sustainability goals.

The ETFs/index funds segment is anticipated to register significant growth over the forecast period. These index funds offer a diversified portfolio of securities that track a specific sustainable index or theme. ETFs/Index funds provide investors with a convenient and cost-effective way to gain exposure to a broad range of sustainable assets across various sectors and regions. The increasing popularity of these funds can be attributed to their transparency, liquidity, and flexibility, which attract both individual and institutional investors. Moreover, ETFs/Index funds allow investors to align their investments with their sustainability goals, as they focus on companies with strong ESG performance.

Investment Style Insights

The active segment dominated the market in 2022 and accounted for a revenue share of over 64%. Active investment strategies involve portfolio managers actively selecting and managing investments based on their expertise and analysis. In the context of sustainable finance, active managers play a crucial role in identifying companies that not only meet financial objectives but also adhere to sustainable principles and practices. By conducting in-depth research and analysis, active managers can identify sustainable investment opportunities and make informed decisions that align with ESG considerations. This approach allows investors to have a more targeted and tailored exposure to sustainable assets, allowing them to make a positive impact while pursuing financial returns.

The passive segment is anticipated to register significant growth during the forecast period. Passive investment involves tracking an index or a benchmark, aiming to replicate its performance rather than actively selecting individual securities. In the context of sustainable finance, passive investing is gaining traction due to the increasing popularity of sustainable indexes and ESG benchmarks. Investors are drawn to passive strategies because they offer broad exposure to a diversified portfolio of sustainable companies, aligning with their values and sustainability goals. Passive investment products such as ESG-focused ETFs and index funds have seen significant inflows driven by the desire for transparent, low-cost, and easily accessible sustainable investment options.

Investor Type Insights

The institutional investors segment dominated the market in 2022 and accounted for a global revenue share of over 79%. Institutional investors, such as pension funds, sovereign wealth funds, and insurance companies, play a crucial role in driving sustainable investment practices. They have the financial capacity and long-term investment horizons to allocate substantial capital toward sustainable investment strategies. Institutional investors increasingly recognize the importance of integrating ESG factors into their investment decisions to manage risks and achieve sustainable long-term returns.

The retail investors segment is anticipated to register significant growth over the forecast period. Retail investors, which include individual investors, high-net-worth individuals, and retail investment funds, are increasingly becoming aware of the importance of sustainable investing and seeking investment opportunities aligned with their values and sustainability goals. There is a rising awareness of the environmental and social challenges faced by the world, such as climate change and social inequality, which has led individuals to seek investment options that can make a positive impact. In addition, technological advancements and increased accessibility to information have empowered retail investors to research and access sustainable investment products easily.

Regional Insights

Europe dominated the sustainable finance market in 2022 and accounted for a revenue share of more than 40%. The region has witnessed strong governmental support and regulatory frameworks that incentivize sustainable finance initiatives. European countries have introduced various policies and regulations that require financial institutions to incorporate ESG factors into their investment decisions. The European Union's action plan on sustainable finance has played a crucial role in driving the growth of sustainable finance by setting clear guidelines and standards for sustainable investment products.

Asia Pacific is anticipated to emerge as the fastest-growing market from 2023 to 2032. There is a growing recognition among businesses and governments in the region about the importance of sustainable development and addressing environmental and social challenges. Countries like China, Japan, and South Korea have implemented ambitious sustainability goals and initiatives, creating a conducive environment for sustainable finance to thrive. Moreover, there is an increasing awareness and demand for sustainable investment products among investors in the Asia Pacific region.

Sustainable Finance Market Segmentations:

By Asset Class 

• Equities
• Fixed-income
• Multi-asset
• Alternatives

By Offerings 

• Equity Funds
• Bond Funds
• ETFs/Index Funds
• Alternatives/Hedged Funds

By Investment Style 

• Active
• Passive

By Investor Type 

• Institutional Investors
• Retail Investors

By Regional 

• North America
  • U.S.
  • Canada
• Europe
  • Luxemburg
  • UK
  • France
  • Germany
• Asia Pacific
  • China
  • India
  • Japan
  • South Korea
  • Australia
• Latin America
  • Brazil
  • Mexico
• Middle East & Africa
  • Kingdom of Saudi Arabia (KSA)
  • UAE
  • South Africa