Convergence of ESG and non-ESG funds beckons

The overwhelming majority (99%) of European institutional investors expect a convergence between ESG and non-ESG products by 2022 – and 77% of them plan to stop purchasing non-ESG products in the same year. 

But while asset managers agree there will be a convergence, just 14% plan to stop launching non-ESG products by this time, according to a PWC report ‘2022: The Growth Opportunity of the Century’.

“The rapid uptick of ESG products is ushering in a paradigm shift across the greater European asset and wealth management  industry,” said Steven Libby, EMEA asset and wealth management leader, and Olivier Carré, Luxembourg fund services leader.

“In Europe alone, in our best-case scenario, we expect ESG fund assets under management to account for over 50% of total European mutual assets by 2025. This will represent a staggering 28.8% compound annual growth rate from 2019 to 2025.”

PwC identified four key catalysts driving the sustained growth of ESG. These cover a ‘major shift from voluntary ESG regulations and initiatives to rigid and binding legislation’, evidence of ESG’s investment outperformance, increasing investor demand and fundamental societal shifts magnified by current environmental, social and health crises.

European ESG assets are forecast to reach between €5.5tn and €7.6tn by 2025, making up between 41% and 57% of total mutual assets by 2025; up from 15.1% at end of 2019.

Against a global backdrop, Europe currently dominates, with the region’s 4,741 ESG mutual funds holding almost 70% of global ESG assets.

PwC’s report notes that amendments to IORP II from the European Insurance and Occupational Pensions Authority could see ESG considerations become a regulatory requirement, and if approved, would solidify the key role of European pension funds in the global ESG space.

PwC surveyed 200 asset managers, 300 institutional investors with European operations, and 800 European retail investors, with assets of total $14.3tn in assets under management.