Sustainable economic growth surges to $7.9 trillion, with growing emphasis on climate adaptation initiatives
The green economy, encompassing sectors such as renewable energy, building insulation, and high-efficiency semiconductor chips, has proven to be more resilient despite facing headwinds. This resilience is evident in the sector's significant growth over the past decade, with a compound annual growth rate of 15%, making it the second-fastest growing sector behind technology [1].
Despite this growth, green stocks have underperformed by 3% so far in 2022, according to researchers [2]. However, the market capitalization of green stocks has continued to grow, reaching $7.9 trillion or 8.6% of the stocks traded worldwide as of Q1 2025 [3]. This growth is driven by accelerating renewable energy deployment, innovation in clean technologies, and supportive trade and policy frameworks.
Renewables are now significantly cheaper than fossil fuels, leading to record deployment and growing economic importance, especially in countries like China and the US [4][5]. The green economy expansion also includes employment growth and revenue increases, notably in renewables, waste management, and circular economy initiatives [6]. For example, the US green economy grew notably and now employs millions, with strong growth in wind and consultancy [5].
The growth of green bonds has been significant, reaching record levels in the past year, with more than a quarter of use-of-proceeds categories in the green bond market linked to climate adaptation and resilience [7]. Fixed income assets may offer a route into the trend of investment in climate adaptation.
However, the renewable energy sector has faced challenges, including sensitivity to interest rates and inconsistent levels of government support [8]. The FTSE Environmental Opportunities All Share Index underperformed its benchmark at the start of 2025 but recovered in the second half and ended the year in line with the broader market [9].
Despite these challenges, LSEG analysts suggest that long-term structural drivers continue to support the green sector [10]. Climate adaptation is a rising investment opportunity in sectors like real estate, utilities, and basic materials, with more than half of all listed firms in these sectors citing adaptation measures in their corporate disclosures [11].
Despite record outflows of €1 trillion from funds labeled as green or sustainable occurring during Q1 2025, the growth of the green economy continues [12]. This may reflect short-term investor sentiment or rotation but does not negate fundamental growth trends. Strong corporates, regulatory pressures, and technological improvements sustain long-term green sector growth despite capital shifting between fund categories.
In summary, the green economy's growth is underpinned by structural changes in energy economics, technology, and policy, maintaining momentum even if some green investment funds experience outflows temporarily. Its market capitalization is increasing but generally lags the technology sector, reflecting different investment scales and market dynamics.
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- The resilience of the green economy, which includes sectors like renewable energy and environmental science, is being driven by accelerating renewable energy deployment, innovation in clean technologies, and supportive trade and policy frameworks.
- In the realm of finance and investing, climate adaptation is emerging as a potent investment opportunity in sectors such as real estate, utilities, and basic materials, with a majority of listed firms in these sectors acknowledging adaptation measures in their corporate disclosures.
- Despite underperformance in 2022, green stocks have seen their market capitalization continue to grow, reaching $7.9 trillion or 8.6% of the total worldwide stocks as of Q1 2025, with the growth driven by the factors mentioned earlier. Additionally, the growth of the green economy has been supported by the significant increase in the issuance of green bonds, reaching record levels in the past year, with over a quarter of use-of-proceeds categories in the green bond market linked to climate adaptation and resilience.
