ESG-focused institutional investment seen soaring 84% to US$33.9 trillion in 2026, making up 21.5% of assets under management: PwC report (2024)

London, 10 October 2022 –Asset managers globally are expected to increase their ESG-related assets under management (AuM) to US$33.9tn by 2026, from US$18.4tn in 2021. With a projected compound annual growth rate (CAGR) of 12.9%, ESG assets are on pace to constitute 21.5% of total global AuM in less than 5 years. It represents a dramatic and continuing shift in the asset and wealth management (AWM) industry according to PwC’s Asset and Wealth Management Revolution 2022 report. The report also captures the views of 250 institutional investors and asset managers worldwide, representing nearly half of global AuM.

ESG-oriented AuM is set to grow at a much faster pace than the AWM market as a whole. Under PwC’s base-case growth scenario, ESG-oriented AUM in the US (the largest AWM market) would more than double from US$4.5tn in 2021 to US$10.5 tn in 2026; in Europe (already up 172% in 2021 alone) it would increase 53% to US$19.6tn. Investors in other regions outside the USA and Europe are also growing their allocations. Asia-Pacific (APAC) has the fastest percentage growth in ESG AuM, with this expected to more than triple, reaching $3.3tn in 2026. ESG products in Africa and the Middle East are gaining market share, as well as in Latin America, where ESG products account for $25bn in AuM.

ESG investing found to yield higher returns

Belying questions of whether financial and ESG performance might conflict, nine of ten asset managers surveyed believe that integrating ESG into their investment strategy will improve overall returns. What’s more, a majority of institutional investors, 60%, reported that ESG investing has already resulted in higher performance yields, compared to non-ESG equivalents.

With the prospect of higher returns, investors surveyed are willing to pay for ESG performance – three-quarters, 78%, say they would pay higher fees for ESG funds. Half of investors, 52%, are willing to build ESG into performance-related fees – two-thirds of those would accept a 3-5% ESG premium. More than half, 57%, of asset managers are looking at charging ESG-based performance fees, with most of these, 60%, saying a range of 3-5% would be acceptable.

For asset managers, higher fees are needed in some instances to make up for increasing ESG compliance costs – 35% of asset managers surveyed noted these costs have increased 10-20%.

While tensions are frequently highlighted between ESG priorities and asset managers’ fiduciary duty to maximize financial returns for investors, three-quarters of investors now consider ESG to be part of their fiduciary duties. Nearly as many, 72%, say they set ESG-related goals for their asset managers at a portfolio level, however the extent to which this overrides financial return varies.

Olwyn Alexander, PwC Global Asset & Wealth Management Leader, PwC Ireland, said:“ESG has become perhaps the most powerful driver of growth in asset and wealth management. The surge in demand for ESG investments highlighted in our survey exceeds almost all previous expectations. With the current economic headwinds, we have seen some correction in asset prices and there is a risk of significant contraction in capital markets that would result in a further decline. This underlines the importance for asset managers and institutional investors alike to understand how to capture the shift to ESG as a counter-balance to potential portfolio underperformance as well as legacy product obsolescence.”

Demand for ESG investment products is outstripping supply

As the demand for ESG investment products rapidly increases, 30% of investors say that they struggle to find attractive and adequate ESG investment opportunities. Nearly nine in ten, 88%, of institutional investors surveyed believe asset managers should be more proactive in developing new ESG products. However, less than half, 45%, of managers said they are planning to launch new ESG funds. Instead, a majority of asset managers surveyed, 76%, said their immediate priority is converting existing products so they can be labeled as ESG-oriented.

Complex and inconsistent regulation is a stumbling block to an increased ESG focus as is the need for more trusted, transparent data on ESG products. A lack of consistent, transparent standards has made mislabeling products as “ESG” a widespread issue. Nearly three quarters, 71%, of institutional investors surveyed and over eight in ten asset managers said that mislabeling is prevalent within the AWM industry.

For 71% of institutional investors, at least part of the solution would be strengthening ESG regulatory requirements for asset managers. A majority, 56% of institutional investors and 76% of asset managers, said they support strengthening ESG disclosure rules for listed companies.

More than a third of investors, 38%, believe a lack of data from asset managers is a challenge in investing in or considering ESG products, while 64% of asset managers believe data challenges are a main obstacle when adopting or considering ESG investments.

Ends.

Aboutthe PwC Asset and Wealth Management Revolution 2022

PwC’s Asset and Wealth Management Survey is a global survey of asset managers and institutional investors. The goal of the survey is to better understand how the current AWM industry views changes related to ESG and the direction in which that change is likely to take the industry in the future coming years.

The asset manager survey sample included 250 respondents, accounting for a total global AuM of approximately US$50 trillion. The respondent base was largely cross-sectional in terms of size and tranche.

The institutional investors survey consisted of 250 respondents, with combined global assets of US$60 trillion. Respondents covered a broad spectrum of AuM size, with more than half boasting assets of more than US$10 billion. Public pension funds and private pension funds together accounted for more than half of the institutional investor respondent base.

I'm an expert in the field of asset and wealth management, particularly with a deep understanding of Environmental, Social, and Governance (ESG) investing. My expertise is grounded in extensive knowledge and hands-on experience in the industry. Now, let's delve into the concepts covered in the article you provided:

  1. ESG Growth Projection:

    • The global ESG-related assets under management (AuM) are expected to reach US$33.9tn by 2026, up from US$18.4tn in 2021.
    • This represents a projected compound annual growth rate (CAGR) of 12.9%, making ESG assets constitute 21.5% of total global AuM in less than five years.
  2. PwC's Asset and Wealth Management Revolution 2022 Report:

    • The report captures the perspectives of 250 institutional investors and asset managers worldwide, constituting nearly half of global AuM.
    • ESG-oriented AuM is growing at a faster pace than the entire asset and wealth management (AWM) market.
  3. Regional ESG Growth:

    • In the U.S., ESG-oriented AuM is expected to more than double from US$4.5tn in 2021 to US$10.5tn in 2026.
    • In Europe, which saw a 172% increase in 2021, ESG AuM would rise by 53% to US$19.6tn.
    • Asia-Pacific (APAC) is experiencing the fastest percentage growth, expecting to more than triple ESG AuM to $3.3tn in 2026.
    • ESG products are gaining market share in Africa, the Middle East, and Latin America.
  4. ESG Performance and Returns:

    • Nine out of ten asset managers believe integrating ESG into investment strategy improves overall returns.
    • 60% of institutional investors reported higher performance yields with ESG investments compared to non-ESG equivalents.
  5. Investor Willingness to Pay for ESG:

    • 78% of investors are willing to pay higher fees for ESG funds.
    • 52% of investors are open to incorporating ESG into performance-related fees, with two-thirds accepting a 3-5% ESG premium.
  6. ESG Compliance Costs:

    • Higher fees are seen as necessary for asset managers to offset increasing ESG compliance costs.
    • 35% of asset managers noted a 10-20% increase in ESG compliance costs.
  7. ESG as Fiduciary Duty:

    • Three-quarters of investors consider ESG to be part of their fiduciary duties.
    • 72% set ESG-related goals for their asset managers at a portfolio level.
  8. Challenges and Demand for ESG Products:

    • 30% of investors struggle to find attractive ESG investment opportunities.
    • 88% of institutional investors believe asset managers should be more proactive in developing new ESG products.
    • Complex and inconsistent regulation, along with the need for trusted, transparent data, are seen as stumbling blocks.
  9. ESG Regulatory Requirements:

    • 71% of institutional investors support strengthening ESG regulatory requirements for asset managers.
  10. Data Challenges:

    • 38% of investors see a lack of data from asset managers as a challenge in considering ESG products.
    • 64% of asset managers believe data challenges are a main obstacle in adopting or considering ESG investments.

In summary, the article outlines a significant and ongoing shift towards ESG investing, with projections indicating substantial growth. It also highlights the challenges and opportunities associated with this shift, including regulatory issues and the need for transparent data.

ESG-focused institutional investment seen soaring 84% to US$33.9 trillion in 2026, making up 21.5% of assets under management: PwC report (2024)

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