Market Research

The ESG Phenomenon: PwC Luxembourg

Amanda Cheesley, Deputy Editor, London, 28 June 2022

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The latest developments in the ESG space.

PwC
PwC Luxembourg has launched a new interactive ESG dashboard which reveals that 66 per cent of European institutional investors plan to stop investing in non-ESG funds.

The dashboard is designed to help European asset managers expand their ESG operations and gain an accurate view of investor demand and market developments, the firm said.

It consists of an interactive data tool, interactive report titled: The ESG Opportunity in Europe and raw data files, gathered from a total of 3,354 respondents across eight European countries: the UK, Switzerland, France, the Netherlands, Germany, the Nordics, Spain and Italy, the firm added. The respondents include 720 European institutional investors, 320 distributors, 1,994 individual investors and 320 asset managers.

Institutional investors
The results show that European institutional investors are demonstrating an increased willingness and readiness to absorb higher fees in order to unlock ESG’s risk mitigation and value creation potential, with 71.9 per cent of those surveyed willing to paying a premium for ESG products.

They are also set to significantly bolster their exposure to Article 8 products, results from the dashboard reveal. While 42 per cent of them currently allocate over 30 per cent of their European assets under management in Article 8 funds, this figure is set to increase to 68 per cent in the coming 12 to 24 months, the firm added.

Distributors
In addition, results from the dashboard show that almost 70 per cent of European distributors anticipate heightened retail demand for Article 8 equity funds over the coming 12 to 24 months and as many as 68 per cent are considering halting their distribution of non-ESG products altogether.

Individual investors     
The dashboard also reveals that 67 per cent of retail, mass affluent and (ultra) high net worth investors are willing to pay an ESG premium whilst 50.2 per cent are considering halting their investments in non-ESG funds.

Asset managers    
Almost 72 per cent of surveyed European asset managers are considering halting their non-ESG product launches entirely, with over 60 per cent aiming to do so by the end of 2024. Seventy-six per cent also plan to hold over 30 per cent of their European assets under management in Article 8 funds within the coming two years, a jump from the 42 per cent that currently do so, the firm said.

Reacting to the results, Olivier Carré, financial services market leader, said: “This 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.”

“Regulatory developments are a primary driver behind this growth and have led to the foundation for ESG standards to become increasingly extra-territorial. 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,” he added.

The dashboard also forecasts that European-domiciled ESG assets will reach between €7.4 trillion ($7.82 trillion) and €9 trillion by 2025, accounting for between 46 per cent and 56 per cent of total European Mutual Fund assets, which is up from 37 per cent at the end of 2021, the firm added.

European-domiciled ESG ETF assets are also expected to surge at a CAGR of between 33.3 per cent and 43 per cent, to reach between €684 billion and €906 billion by 2025, the firm stressed. ESG Equity ETFs 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 per cent and 43.2 per cent.

Wrapping up, Dariush Yazdani, global asset and wealth management research centre leader, said: “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.” 

PwC Luxembourg provides audit, tax and advisory services including management consulting, transaction, financing, and regulatory advice.

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