Analysis: Politics, not climate, to drive sustainable finance trends in 2025

As the world grapples with the impacts of climate change, the focus on sustainable finance has intensified. However, the political landscape in 2025 is expected to play a more significant role in shaping sustainable finance trends than climate concerns alone. This article explores the key political factors that will influence the direction of sustainable finance in the coming year.



1. Policymakers juggling sustainability with other priorities

In 2024, voters in various countries prioritized different issues, with some emphasizing sustainability while others focused on cost-of-living concerns and energy security. This indicates that policymakers will need to balance sustainability with other priorities, such as competitiveness, energy security, and defense. For instance, in the EU, the new EU Commission taking office in early 2025 may slow down the pace of new legislation on green finance as attention shifts to competitiveness and enhancing the usability of the current framework (Source: "Navigating SFDR and new ESG fund-naming rules").



1. Transition finance taking the spotlight

Despite political backlash, the need for genuine decarbonization efforts remains pressing. In 2025, transition finance is expected to gain more attention, as governments and investors seek to fund projects that facilitate the shift towards a low-carbon economy. For example, the 4th International Conference on Financing for Development in Seville, Spain, in June-July 2025, will focus on funding the United Nations Sustainable Development Goals (SDGs), including SDG3, which aims to ensure health for all. This conference could provide an opportunity to mobilize additional resources for sustainable finance initiatives (Source: "The 4th International Conference on Financing for Development will take place in Seville, Spain, between 30 June and 3 July 2025").



1. Maturing regulations demanding adaptability

As sustainable finance regulations evolve, financial institutions will need to prepare for increasingly complex frameworks in 2025. For instance, in the EU, the standardization of sustainability data will reach a milestone with companies in scope of the Corporate Sustainability Reporting Directive (CSRD) reporting on over 1,000 environmental, social, and governance indicators (where material). Additionally, sector-specific standards are being developed, with a first draft for financial firms expected in the spring of 2025 (Source: "The standardization of sustainability data will reach a milestone in 2025"). These developments will require financial institutions to adapt their strategies and comply with new regulations, potentially slowing down the pace of innovation in sustainable finance.

In conclusion, the political landscape in 2025 is expected to play a significant role in shaping sustainable finance trends, with policymakers balancing sustainability with other priorities, transition finance taking the spotlight, and maturing regulations demanding adaptability from financial institutions. As the world continues to grapple with the impacts of climate change, the focus on sustainable finance will remain crucial, but the political factors outlined above will be the driving force behind the direction and pace of change in the coming year.