Sustainable investing has gained tremendous traction, with younger investors leading the charge. A recent Morgan Stanley report shows that 84% of U.S. individual investors are interested in sustainable investing. Among Millennials and Gen Z, this interest jumps to 85%. This trend highlights a big shift in financial priorities, as younger investors want their strategies to match their values.

Why Young Investors Prefer Sustainability

A key factor boosting the appeal of sustainable investments is investor confidence in financial performance. About 68% of people in Morgan Stanley’s surveys think sustainable investments can provide returns that are as good or better than traditional ones. This belief rose from 57% in 2019, which shows a clear trend. More people accept sustainable finance as a valid investment strategy.

• 84% of U.S. individual investors express interest in sustainable investing, 77% globally.
• Researchers recorded an 85% interest rate among Millennials and Gen Z.
• Confidence in performance has increased from 57% in 2019.
• About 84% believe that ESG funds can deliver returns that match the market while also creating positive social or environmental impacts.

Newer market data reinforces this confidence. In the fourth quarter of 2024, global sustainable open-end and exchange-traded funds (ETFs) saw record inflows of $16 billion. This amount is nearly double the $9.2 billion from the previous quarter.

These steady inflows show that investors see sustainable assets as financially competitive. This is especially true as more data on long-term returns come out.

Younger generations, especially Gen Z and Millennials, care about ethical investing. They also want to secure their financial futures. They link sound financial performance to eco-friendly investments. This shift is changing the investment landscape and making sustainable finance a key part of mainstream investing.

Market Trends in Sustainable Investing

The growing momentum of sustainable investing reflects a larger market shift. Global sustainable assets under management (AUM) are about $30 trillion now. Bloomberg analysts expect them to rise to over $40 trillion by 2028.

Investors want more, and strong performance numbers support this explosive growth. This trend shows that customers care more about ethics in their investments, not just profits.

In the U.S., sustainable investment assets reached $6.5 trillion by the end of 2024. This amount makes up around 12% of all professionally managed assets. Meanwhile, sustainable funds’ assets globally reached $3.56 trillion, marking a 4.8% increase from the prior year.

Sustainable funds made up 6.8% of total assets, down from 7.3% in 2023. Still, strong inflows show that investors remain interested, even with market ups and downs.

Remarkably, the Morgan Stanley survey suggests that nearly 80% of global investors take a company’s carbon footprint reporting and its plans to cut greenhouse gas emissions into account when deciding on new investments.

However, this does not mean traditional energy companies are excluded. In fact, 51% of investors are open to investing in traditional energy companies if they have strong plans to lower emissions and address climate change.

This interest is even higher among investors who are very focused on sustainable investing:

• 62% of those highly interested in sustainable investing would consider traditional energy firms with solid climate plans.
• 55% of those who list climate action as a top priority would also invest under these conditions.

Investors are clearly looking for companies to show clear strategies for reaching their decarbonization goals. At the same time, many individual investors are also seeking ways to reduce the carbon footprint of their own portfolios. More than 60% said they would likely buy carbon offsets if they were available.

Gen Z and Millennials: The New Financial Powerhouses

Generational influence is palpable in today’s financial markets. Gen Z and Millennials make up almost 60% of the global workforce. This gives them the power to shape corporate strategies and practices.

These two generations are not only prepared to invest but also to drive sustainable consumption patterns. Their values focus on social responsibility and longevity. These beliefs guide the path of sustainable finance.

Corporate reporting has adapted accordingly. In 2024, about 90% of S&P 500 companies have published ESG reports. Many of these reports explain how climate change and social factors affect their operations and long-term plans. This rise in ESG disclosures signals that companies recognize investor expectations regarding transparency and sustainability.

The Future of Sustainable Investing

The implications of this shift are significant. Sustainable investing has transitioned from a perceived ethical choice to a financially sound strategy. As regulations grow, following ESG principles is now essential. Companies must adopt these practices to ensure long-term success and earn investor trust.

In the U.S., the SEC plans to complete climate disclosure rules by 2025. Companies must share detailed data on their greenhouse gas emissions and climate risks.

The U.K. will start new rules in April 2025. Funds using terms like “sustainable” or “ESG” must meet strict criteria. These rules are based on one of four official fund classifications. These developments aim to reduce greenwashing risks and offer clearer information to investors.

Yet, the market faces short-term hurdles. In March 2025, ESG-focused mutual funds and ETFs saw a net outflow of $2.94 billion. This shows that investors are cautious due to political pushback and economic uncertainty. Moreover, ESG bond fund revenue growth has stagnated in Europe, rising just 2% in 2024.

Despite current headwinds, the long-term outlook remains strong. A US SIF survey shows that 73% of asset managers expect sustainable investing to continue growing rapidly over the next two years. Several factors drive this optimism. These include client demand, changing regulations, better ESG data quality, and corporate innovation.

This shift shows that sustainable investing is here to stay. It is changing how consumers behave and how companies plan, and it is happening on a large scale. This will change financial landscapes in the years ahead.