- ESG assets to reach between EUR 5.5 trillion and EUR 7.6 trillion by 2025
- ESG assets will make up between 41% and 57% of total mutual fund assets in Europe by 2025
New data from PwC Luxembourg finds that ESG represents the largest fundamental change in the investment landscape since the introduction of ETFs. It forecasts that European ESG assets are set to reach between EUR 5.5 trillion and EUR 7.6 trillion by 2025, comprising between 41% and 57% of total mutual fund assets in Europe by 2025; This is up from 15.1% at end-2019.
The report, titled: The Growth Opportunity of a Century available here surveys 200 asset managers, 300 institutional investors with European operations, and over 800 European retail investors, representing an estimated 14.3 trillion USD in assets under management (AUM).
Out of the 300 Institutional investors surveyed 40% represented insurance companies, 37% were pension funds, 18% were family offices and 5% sovereign wealth funds.
PwC Luxembourg also carried out in-depth interviews with a number of leading asset managers and institutional investors to get first-hand accounts of what direction senior industry practitioners believe the industry is heading.
The report examines the following themes and uncovers some key findings
- A paradigm shift – The sheer transformational potential of ESG is highlighted by the fact that, even in a baseline scenario, PwC Luxembourg expects ESG fund assets under management (AuM) to account for over 41% of total European mutual fund assets by 2025; bolstered mainly by a surge in investor demand and European asset managers aligning with regulations. If an optimistic scenario was to materialise, PwC expects ESG assets to represent a staggering 57% of mutual fund assets by end-2025.
- ESG Fund growth – ESG Equity funds AUM will grow from EUR 866.3bn as of end-2019 to between EUR 2.6 trillion and EUR 3.6 trillion by 2025. Meanwhile, ESG bond funds AuM are expected to reach between EUR 1.1 and EUR 1.6 trillion by the end of 2025.
- European Leadership – Given Europe’s strong regulatory environment and momentum behind ESG, PwC believes that the region is strongly positioned to capitalise on this opportunity and further increase its position in the global ESG space. This, combined with a strong asset performance, would see Europe’s share of global ESG assets represent between 71% and 74% by 2025.
- A fundamental disconnect – A vast majority of European institutional investors expect a convergence between ESG and non-ESG products by 2022, with 77% of them planning to halt purchasing non-ESG products that same year. While asset managers agree that there will be a convergence, only 14% plan to stop offering non-ESG products by 2022.
- ESG Outperformance – The performance gap between ESG and non-ESG products will widen significantly in the future, and the long-held concern with ESG products’ tendency to underperform will reverse entirely. ESG products will emerge as a stronger source of returns and downside protection with respect to their mainstream equivalents.
- Key actions – The report identifies seven key actions that managers should consider from both a strategic and operational perspective in order to be able to take advantage of the century-defining ESG opportunity. These include repositioning your organisation, being credible and consistent in your ESG approach, integrating ESG at a product level, tackling the ESG data challenge, developing a strong ESG risk management framework, reporting to investors and educating the investment community and staff.
Olivier Carré, Financial Services Market Leader at PwC Luxembourg commented:
“Public awareness of ESG related risks, major regulatory change and institutional investors preferences are rapidly pushing ESG investing to the top of the asset management agenda. The combination of these trends has brought the European asset and wealth management industry to the brink of an imminent paradigm shift.
We expect that the AWM industry of tomorrow will be different from today, with ESG considerations becoming a standard for investing at a level playing field with the traditional financial yield standards.
This shift represents a once-in-a-century opportunity – not only for the AWM industry, but for the future development of Europe as a continent. As global capital becomes increasingly channeled towards sustainable projects, Europe is well positioned to act as the global ESG hub – creating new jobs and opportunities and thus enhancing the prosperity and future life quality of its population.”