How Big Is the US Sustainable Investment Market? $6.5 Trillion, Trade Group Says

The size of the US sustainable investment market is $6.5 trillion, accounting for 12% of the overall $52.5 trillion market dominated by conventional investing, according to a report by US SIF, the trade group for the US sustainable investing industry.

US SIF defines sustainable investments as those specifically identified or marketed as sustainable or as environmental, social, and governance-related in SEC disclosures. These include disclosures for money managers (Form ADV) and asset owners (Form 13F) with US-registered addresses. The US SIF study made adjustments to avoid double counting between institutional investors and asset managers. It also classified assets as sustainable investments “if there is specific and explicit evidence of sustainability-related [assets under management] or percentages.” Among other things, the study reviewed investors' public websites, their responses to the US SIF survey, and their reports to the Principles for Responsible Investment network, which documents the percentage of AUM in ESG-marketed products.

In 2022, US SIF reported that the US sustainable investing market was $8.4 trillion. However, the numbers aren’t directly comparable, because the 2022 data relied on self-reports, while the 2024 data are based solely on publicly available information, which will allow better consistency in the future, a US SIF spokesperson said.

A larger amount of assets—$41.5 trillion, or 79%—was covered by a stewardship policy, according to publicly available investor information and disclosures. Stewardship and engagement are big sustainable investing practices.

In addition, US SIF surveyed 265 institutions, including asset managers, asset owners, and institutional investors; community development institutions; foundations and endowments; wealth managers; and others.

Clean Energy Transition Dominates Investor Concerns

Some highlights of the survey:

• The top priorities for respondents are climate change and the clean energy transition;

• Seventy-three percent of respondents expect the sustainable investment market to expand over the next one to two years.

•The integration of sustainability or ESG characteristics (81%) and exclusionary screening (75%) are the most frequently reported sustainable investing strategies. Over 65% of respondents use three or more strategies across their investments.

• Partial or full fossil fuel exclusions are now the most frequently reported negative screens (68%), surpassing tobacco exclusions (66%).

“Investor interest in capturing the opportunity of the climate transition remains a huge opportunity for the industry,” Maria Lettini, the CEO of US SIF, said in a statement. “Broader global market trends, such as regulatory obligations, evolving client preferences, the transfer of intergenerational wealth, and the growing frequency and severity of financially material physical and transition risks associated with climate change, are certainly contributing to investors’ interest.”

Interest in Sustainable Investing

The expected growth of the sustainable investing market rhymes with the findings of a recent Morgan Stanley report that shows that more than 78% of asset managers and 80% of asset owners expect sustainable AUM and asset allocations to rise in the next two years, driven by new mandates and a more established track record for sustainable investing. The survey of more than 900 institutional investors globally during July and August 2024 was undertaken by the Morgan Stanley Institute for Sustainable Investing.

Sustainable Investing and Trump

To be sure, the incoming Trump administration may create stumbling blocks for sustainable investing in the US. Hortense Bioy, head of sustainable investing research at Morningstar Sustainalytics, writes that the Trump administration is likely to exit the Paris Agreement again, Congress may reduce some of the clean energy subsidies in the Inflation Reduction Act, and the SEC may reverse the rules requiring public companies to disclose greenhouse gas emissions and climate-related risks. Meanwhile, the US Department of Labor’s guidance on ESG factors for Erisa-covered retirement plans is likely to shift back toward stricter rules requiring fiduciaries to prioritize financial returns and avoid ESG-related costs unless they are clearly linked to long-term value creation, Bioy says. Separately, another factor is the trend toward restricting ESG factors in public fund investments in Republican-controlled states, according to J.P. Morgan.

The incoming Trump administration “likely means further setbacks for sustainable investing in the US,” writes J.P. Morgan in a December report entitled “ESG at a Transformational Crossroad.” Indeed, J.P. Morgan notes that many firms in the US “have shifted away from using the term ‘ESG’ altogether, opting instead for alternative terms like ‘sustainable investing’ and ‘responsible investing.’” Nevertheless, these Trump-related setbacks are “unlikely to spill over globally,” the firm added. That is because US sustainable assets account for just 11% of global sustainable assets under management.

For now, J.P. Morgan says, sustainable investing “remains a largely European story in that over 80% of ESG AUM is domiciled in Europe.”