Green economy hits $7.9trn as share of climate adaptation grows
The green economy now accounts for nearly ten per cent of global stock markets, with climate adaptation making up a growing share, according to new research
Despite volatility in global stock markets during the first quarter of 2025, the green economy now represents $7.9trn or 8.6 per cent of stocks traded worldwide, figures from the London Stock Exchange Group (LSEG) show.
This growth comes despite record outflows of €1trn from funds labelled as green or sustainable during the same period, according to separate data from LSEG Lipper reported last week.
While the FTSE Environmental Opportunities All Share Index began the year underperforming its benchmark, the FTSE Global All Cap Index, it recovered in the second half and ended the year in line with the broader market. So far this year, green stocks have underperformed by 3 per cent in what researchers describe as challenging market conditions.
LSEG analysts argue that long-term structural drivers continue to support the sector. The market capitalisation of green stocks has grown at a compound annual growth rate of 15 percent over the past decade, making it the second-fastest growing sector behind technology.
However, performance has varied significantly between sectors. The renewable energy sector has faced headwinds, including sensitivity to interest rates and inconsistent levels of government support. In contrast, the energy efficiency sector, which includes assets such as building insulation and high-efficiency semiconductor chips, has proven to be more resilient.
Researchers also highlight the rise of investment opportunities in climate adaptation. Adaptation finance flows have grown at a compound annual growth rate of 21 percent, reflecting the increasing focus on resilience.
Awareness of climate adaptation is particularly strong in sectors such as real estate, utilities and basic materials. In these industries, more than half of all listed firms are citing adaptation measures in their corporate disclosures, according to LSEG.
Fixed income assets may offer a route into this trend, with more than a quarter of use-of-proceeds categories in the green bond market linked to climate adaptation and resilience. LSEG's analysis of over 12,000 green bonds shows that over 25 percent of eligible use-of-proceeds categories relate to adaptation and resilience investments.
Global green bond issuance reached a record $572bn last year. However, it is expected to be slightly lower in 2025, with first-quarter issuance down 13 per cent compared to the same period in 2024.
