Two-thirds of Europe’s institutional investors plan to stop investing in non-ESG funds by the end of next year, according to fresh survey data released on Monday. Nearly 72 percent of them are willing to pay a premium for ESG products, while a similar majority of European asset managers wants to stop launching non-ESG products by 2024.
Releasing a new edition of its interactive ESG dashboard for European asset managers, PwC Luxembourg projected a market worth between 7,400 billion euro and 9,000 billion for European-domiciled ESG assets by 2025. This will account for between 46 percent and 56 percent of European mutual fund assets, up from 37 percent at the end of last year.
“As regulators and society increasingly urge investors to incorporate sustainability considerations within their investment policies and operations, managers will see a continued surge in demand for ESG products in the coming years,” said Dariush Yazdani, Global Asset and Wealth Management Research Centre Leader, PwC Luxembourg.
PwC’s interactive dashboard for the European ESG market is based on proprietary data gathered from a total of 3,354 respondents across eight European countries: UK, Switzerland, France, Netherlands, Germany, the Nordics, Spain and Italy. The respondents include 720 European institutional investors, 320 distributors, 1,994 individual investors and 320 asset managers.
ESG ETFs set for 33-43 percent growth
European ESG ETFs are poised to surge at a growth rate of between 33 and 43 percent to reach between 684 billion eur and 906 billion euro by 2025. ESG equity ETFs underpin that growth with projected growth rates of between 33.6 and 43,2 percent, according to the PwC report.
Pension funds, insurers, endowments and foundations and family offices all are “demonstrating increased willingness and readiness to absorb higher fees: in order to unlock the increased potential for risk mitigation and value creation that ESG offers, said the consultancy firm.
Olivier Carré, financial services market leader at PwC Luxembourg said the report highlights a “historic asset and sentiment shift within Europe’s Investor bases, one which has seen ESG evolve from a ‘nice to have’ for the most sustainability conscious investors to an all-encompassing paradigm shift across Europe’s traditional investment landscape.”
Standards increasingly extra-territorial
“Regulatory developments are a primary driver behind this growth and have led to the foundation for ESG standards to become increasingly extra-territorial,” Carré said. “We are already seeing likely international regulation following the EU’s example in this regard, particularly in light of mounting global political commitments towards tackling ESG and sustainability issues.”
With regulations becoming increasingly stringent, asset “managers – especially those willing to compete at a global level – will be pushed towards an all-encompassing alignment of their products and operations with ESG,” he said.
The share of impact investments, as defined by Article 8 of the EU’s sustainable finance regulations, is expected to increase to 68 percent in the next 12 to 24 months. At present, 42 percent investors some 30 percent of their European assets under management to Article 8 funds, PwC said. Almost 70 percent of European distributions anticipate higher retail demand, in the coming years, it said in its report.
Two-thirds, or 68 percent, of fund managers surveyed are considering halting their distribution of non-ESG products altogether, of which half are planning to do so in the next two years. Among retail, mass affluent and high net worth investors, 50.2 percent are considering halting their investments in non-ESG funds.