More than three quarters of institutional investors tell PwC Luxembourg they will no longer purchase non-ESG products by 2022.
Between 41% and 57% of total European mutual fund assets could be invested in ESG-focused funds by the middle of the decade.
PwC Luxembourg has predicted European ESG assets could rise to €5.5 trillion by 2025 as a base scenario, rising to an even more bullish €7.6 trillion, based on survey of European asset managers, institutional investors and retail investors representing $14.3 trillion in assets under management. ESG funds accounted for 15.1% of the European market at the end of last year.
In a new report, ‘Growth Opportunity of a Century’, PwC Luxembourg claims that ESG’s move to the mainstream will be the fastest growing area of the mutual fund industry over the next decade, arguing it represents “the largest fundamental change in the investment landscape since the introduction of ETFs”.
Growth will be driven by a combination of regulatory change, ESG fund outperformance, strengthening investor demand and societal shifts highlighted by the Covid-19 pandemic, according to the professional services firm.
PwC Luxembourg’s survey also suggests an imminent market convergence whereby investors expect all mutual funds to incorporate ESG factors. Almost all (99%) of institutional investors said there would be convergence between ESG and non-ESG products, with four in five expecting large-cap equity funds to converge by 2021. More than three quarters (77%) of institutional investors said they would no longer purchase non-ESG products by 2022.
The report asserts that the European market for ESG-based mutual funds will grow faster than elsewhere due to a supportive regulatory environment and comparatively high levels of demand. This, combined with a strong asset performance, could see Europe account for 74% of global ESG assets by 2025.
“This shift represents a once-in-a-century opportunity – not only for the asset and wealth management 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,” said Olivier Carré, Financial Services Market Leader at PwC Luxembourg.
For the survey, PwC Luxembourg interviewed 200 asset managers, 300 institutional investors with European operations, and over 800 European retail investors. Of the 300 institutional investors surveyed, 40% represented insurance companies, 37% were pension funds, 18% were family offices and 5% sovereign wealth funds.