ESG funds set to hold most assets under management

ESG funds' market share is set to be more than their non-ESG counterparts by 2025, according to a PwC report

ESG funds are set to hold more assets under management than their non-ESG counterparts by 2025, according to a PwC report first seen by the Financial Times.

Sustainable and responsible investment funds are expected to manage £6.89trn (€7.6trn) across Europe over the next five years. ESG funds' market share may rise to 57% in 2025, compared with the current 15%.

Olivier Carré, one of the PwC study's authors, said the huge ramp-up in demand for ESG funds is one of the most significant developments the European wealth management space has seen for more than 30 years.

It represents a once-in-a-century opportunity - not only for the [asset management] industry, but for the future development of the overall European continent, he said.

Carré added that increasing correlation between ESG risk management and better returns, an increased awareness of the importance of sustainability since the start of the pandemic and the impending EU green finance rules have also contributed towards a surge in popularity for ESG funds.

Even in PwC's base-case scenario, European assets under management in the ESG space will increase from £1.54trn (€1.7trn) to £4.98trn (€5.5trn) over the next five years.

The firm believes a significant part of its forecasted asset growth among ESG funds will be the result of traditional funds overhauling their core strategies.

In an RBC GAM survey published last week, three out of four institutional investors now incorporate ESG principles into their investment process.

Meanwhile, recent research from Campden Wealth, Global Impact Solutions Today (GIST), and Barclays Private Bank found that high net-worth investors plan to increase their allocation to impact investing from 20% of their portfolios in 2019 to 35% by 2025.