ESG assets set to account for more than a fifth of AUM in less than 5 years
Institutional investors are set to significantly increase the share of their assets under management (AUM) that are ESG-related.
A new report from PwC projects that asset managers globally will increase these assets by 84% to US$33.9 trillion in 2026 from just $18.4 trillion last year.
The surge will mean that ESG-related assets account for 21.5% of total global AUM within the next five years.
With a compound annual growth rate (CAGR) of 12.9% these assets will see faster growth than the overall asset and wealth management (AWM) industry.
Growth will include a more-than-doubling of ESG assets in the US (to $10.5 trillion) while Europe will see a 53% increase to $19.6 trillion having surged 172% last year.
But, as with many sectors of wealth management, Asia Pacific has the potential for the fastest growth, with PwC predicting a tripling of ESG AUM to $3.3 trillion.
There is also growing market share in Latin America and Africa and the Middle East.
Fee premiums
PwC’s Asset and Wealth Management Revolution 2022 report also polled asset managers and institutional investors and discovered that 60% of investors say that ESG investing has already resulted in higher performance yields, compared to non-ESG equivalents.
This evidence means that almost three quarters of managers are willing to pay higher fees for ESG funds and 52% of investors are willing to build ESG into performance-related fees.
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.
No doubt
There is no doubt that ESG is a key priority for asset managers and the survey found that three-quarters of investors now consider ESG to be part of their fiduciary duties.
Almost three quarters set ESG-related goals for their asset managers at a portfolio level, although the extent to which this overrides financial return varies.
However, there remain concerns about lack of consistent regulation and 56% of institutional investors and 76% of asset managers said they support strengthening ESG disclosure rules for listed companies.
John Garvey, PwC Global Financial Services Leader, PwC United States, said that investor expectations on ESG are transforming how value is defined and delivered within the AWM industry.
“There is a short-term trend of ESG opportunists, responding to changing stakeholder demands and looking for quick wins,” he said. “The longer-term winners will be those asset managers who recognize that capturing the full potential of ESG demands a clear vision of what your business stands for, a strategy for change and a durable governance, accountability and reporting framework to make sure that what is promised in terms of ESG is in fact delivered.”
