European domiciled ESG assets set to comprise over half of total AUM

European-domiciled environment, social and governance (ESG) assets are poised to reach between €7.4 trillion and €9 trillion by 2025, according to a new study by PwC Luxembourg.

They will then account for between 46% and 56% of total European mutual fund assets, up from 37% in end-2021,

It also showed that European-domiciled ESG ETF assets are expected to reach between €684 billion and €906bn by 2025.

ESG equity exchange traded funds (ETFs) which are set to significantly underpin this growth in both forecast scenarios, with total assets in this segment growing at a CAGR of between 33.6% and 43.2%.

The report surveyed a total of 3,354 respondents across  the UK, Switzerland, France, Netherlands, Germany, the Nordics, Spain and Italy.

They included 720 European institutional investors, 320 distributors, 1,994 individual investors and 320 asset managers.

Breaking it down by category. the report found that almost 72% of surveyed European asset managers are considering halting their non-ESG product launches entirely, with over 60% aiming to do so by end-2024

In addition, 76% plan to hold over 30% of their European AuM in Article 8 Funds under the Sustainable Finance Disclosure Regulation within the coming two years – a notable jump from the 42% that currently do so.

The report also found that European institutional investors are demonstrating increased willingness and readiness to absorb higher fees in order to unlock ESG’s risk mitigation and value creation potential – with 71.9% of those surveyed being agreeable to paying a premium on ESG products.

They are also set to significantly bolster their exposure to Article 8 products. While 42% of investors currently allocate over 30% of their European AuM in Article 8 funds, this figure is set to increase to 68% in the coming 12-24 months.

To help the industry, PwC Luxembourg has launched a new interactive ESG dashboard dedicated to supporting European asset managers to expand their ESG operations and gain an accurate view of investor demand and market developments.

The dashboard consists of an interactive data tool as well as report and raw data files which combined offers comprehensive and granular insights into the ESG investing landscape and sentiment among European institutional investors.

It covers over 1,000 pages and exhibits, representing the most extensive and comprehensive study on Europe’s fast-growing traditional ESG landscape to date.

“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,” says Dariush Yazdani, global asset and wealth management research centre leader at PwC at Luxembourg.

Managers looking to seize the ESG opportunity should strive to holistically and consistently incorporating ESG across the board, viewing their entire operations through an ESG lens and adopt an all-encompassing approach to ESG, one that ranges from implementing sustainability into their product offering, all the way to assessing the sustainability metrics of their entire business structure.

©Markets Media Europe 2022

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