The PwC building in Luxembourg NADER GHAVAMI

The PwC building in Luxembourg NADER GHAVAMI

Demand is outstripping supply in environmental and socially governed investments, prompting calls for fund managers to accelerate ESG integration into all investments rather than preserving them for standalone products, a recent survey by global consultancy PwC has found.

Eight out of ten US investors plan to increase their allocations to products over the next two years while ESG is replacing asset price increases as an engine of growth, a of asset managers and institutional investors has found.

All in all, the industry expects $33.9trn in projected ESG-orientated assets under management by 2026.

“Our findings reveal an asset and wealth management industry in transition,” Olwyn Alexander, PwC’s global asset and wealth management leader, Partner at PwC Ireland, said in the report.

However she notes that burdensome compliance can be a problem.

 “We also point to the need to reconfigure operating models to secure and retain mandates, and to create a compelling ESG story and develop credible reporting to track and communicate progress against it. To reinforce and accelerate change, it’s also important to build ESG into digital and workforce transformation when developing insight, strengthening leadership and delivering demonstrable value for money.”

The survey identified ten ways ESG is shaping the future, namely:

 -ESG is replacing asset price increases as an engine of growth;

- Pursuing ESG is fundamental;

- The investible universe for ESG funds will open up;

- ESG has broadened objectives and fiduciary duties;

- Investors are pushing for new ESG products—but demand outstrips supply;

- To attract new investment, managers need to differentiate their products and demonstrate ESG performance;

- Investors say they want more regulation;

-A meaningful ESG strategy requires investment;

- ES and G must be balanced as part of a just transition;

-Managers need a proactive risk-mitigation strategy for mislabelled products.  

On the last point, more than seven in ten institutional investors and more than eight in ten asset managers believe that mislabelling is prevalent in the asset management industry -- although rarely deliberate.

The risks are heightened by the pace at which new regulations are coming on stream and uncertainty over the ESG designations within them.

“One example of this uncertainty is the continuing debates over which investments are included in the EU Taxonomy,” PwC summarised in the survey results. “More often than not it stems from the lack of clarity in regulatory classifications, insufficient consistency in data standards and poor information coming from portfolio companies.

The results of the survey warned that “delays or lack of transparency can only heighten the reputational damage and risk of regulatory sanction.”