LSEG’s 2025 report reveals that the green economy has entered its next phase of growth — surpassing $7.9 trillion despite short-term volatility.
Navigating Volatility in the Green Economy
The London Stock Exchange Group’s 2025 report, Investing in the Green Economy: Navigating Volatility and Disruption, reveals that the green economy has surpassed $7.9 trillion in market value, covering 50 markets and nearly every industry. Despite geopolitical instability and economic uncertainty, long-term structural drivers such as the energy transition, climate resilience, and environmental regulation continue to support growth.
“Despite market turbulence, long-term drivers continue to underpin strong growth in the green economy.”
Growth, Disruption, and Regional Dynamics
Revenues from green products and services now exceed $5 trillion, with green equities recovering in late 2024 to finish in line with broader markets. However, they have underperformed by 3% year-to-date through April 2025. Over the past decade, the green economy has grown at a compound annual rate of 15%—second only to the Technology sector.
“If considered a standalone sector, the green economy would be the 4th largest globally,” the report notes, highlighting Energy Management and Efficiency as its largest and best-performing sub-sector, representing 46% of the green economy.
Asia leads in revenue generation (44%), while the Americas hold the largest market capitalization share. Emerging markets are accelerating, with green revenues growing nearly twice as fast as in developed economies.
Climate Adaptation – A Trillion-Dollar Investment Frontier
As physical climate risks rise, adaptation is becoming a major investment theme. Public adaptation finance more than doubled from $35 billion in 2018 to $76 billion in 2022 — a 21% compound annual growth rate. Yet, this remains far short of the $387 billion needed annually, according to UNEP.
Corporate engagement is growing:
- 34% of large and medium-sized companies in the FTSE All World Index now reference adaptation actions in disclosures.
- Top sectors include Real Estate (76%), Utilities (70%), and Basic Materials (61%).
Examples of corporate actions include flood controls, early warning systems, resilient infrastructure upgrades, and improved insurance — all showing strong cost-benefit potential.
“With a market capitalisation of US$454 billion, green buildings are the largest green sector with exposure to adaptation solutions,” the report states.
Green bonds are emerging as a key tool:
LSEG found that over 25% of green bond use-of-proceeds categories are tied to adaptation and resilience — including flood risk management in the UK, the Netherlands’ Delta Plan, and Fiji’s coastal protection investments.
Fund Performance – A Mixed Picture for Sustainable Strategies
The report also examined how well different investment strategies are capturing green economy growth. Using the Weighted Average Green Revenue (WAGR) metric, LSEG analyzed funds under the UK’s SDR (Sustainability Disclosure Requirements) labels.
Key insights:
- Sustainability Focus funds had the highest green exposure — up to 89% WAGR — exceeding even the 50% WAGR of the FTSE Environmental Opportunities Index.
- Sustainability Impact funds varied more widely, but still maintained exposure well above the global benchmark average (9%).
- Sustainability Improver funds, which target future performance, showed the lowest green revenue exposure — typically at or below the 9% baseline.
“These findings highlight the importance of using metrics such as WAGR to evaluate and deepen our understanding of sustainable investment strategies,” the report concludes.
Overall, while green equities offer high upside potential, they remain volatile. Green corporate bonds have proven more resilient — outperforming traditional corporate bonds in both 2023 and 2024, driven by favorable duration dynamics amid rising rates.
Sector Composition and Capital Outlook
Four industries—Technology, Industrial Goods and Services, Automobiles and Parts, and Utilities—make up nearly 75% of the green economy. Electric vehicles, energy-efficient semiconductors, and renewable power dominate the landscape.
Despite the global push, green capital expenditures (CAPEX) remain underreported. In 2023, $475 billion in CAPEX was aligned with the EU Taxonomy, led by the Utilities sector.
The Road Ahead
While short-term headwinds persist, the fundamentals of the green economy remain strong. Regional powerhouses like the U.S., China, and Taiwan continue to lead in market value, while smaller economies like Bangladesh and Fiji demonstrate innovation in adaptation finance.
“Addressing climate change will require between US$109 trillion to US$275 trillion by 2050,” the report concludes—pointing to vast opportunities ahead for investors aligned with green transition and resilience.
