“If you want to be in a growth market, ESG is where you need to be,” according to Dariush Yazdani, advisory partner at PWC.
The comments came during Luxflag Sustainable Investment Week 2022 on Monday.
In a video address opening the conference, Yuriko Backes, Luxembourg’s finance minister (DP), admitted that the energy crisis had slowed down and even caused backsliding in Europe’s shift towards sustainability. For example, many countries have reactivated coal power plants, she stated.
But the energy crisis was an opportunity, “to step up investments in renewables,” Backes said. At the same time, “energy conservation is gaining momentum.” The crisis presented a “window of opportunity” to take more robust climate action.
Faster growth rate for ESG
A recently released report by the consultancy PWC forecast that global assets under management in investment funds would slow from a compound average growth rate of 8.9% from 2015-2021 to 4.3% in 2022-2026. However, assets under management in ESG funds were expected to grow by 12.9% in 2022-2026, Frédéric Vonner, partner at the consultancy PWC, said in a presentation of the report’s findings.
A “large part” of that 12.9% CAGR will be “retrofitting”, noted Yazdani. Yet 40% of newly launched funds in Europe will be ESG.
In keeping with this market shift, 8 in 10 asset managers in the survey said they planned to increase their ESG product launches, while 8 in 10 institutional investors said they have or would reject an asset manager if its ESG approach was found to come up short. Three out of four institutional investors said that ESG was part of their fiduciary duty, Vonner reported.
Premium for ESG products
“The vast majority of institutional investors say they are willing to pay a premium” for ESG products. Globally the average was 35.2 basis points, while in Europe the average was a bit higher, at 37.3bps.
The PWC figures were based on a survey of 250 asset managers and 250 institutional investors globally.
“Six years down the road, ESG will be dominant,” Yazdani predicted. ESG is “not an investment trend,” he said, “it’s a values shift.”
Luxflag Sustainable Investment Week 2022 was organised by Luxflag, the labelling agency that checks investment fund firms’ responsible investing claims. The outfit has granted current labels to more than 360 funds domiciled in Luxembourg and 8 other European jurisdictions, representing more than €200bn in assets under management.
ESG funds use environmental, social and governance criteria, in addition to financial performance, to determine their investment decisions.
PWC said the global ESG fund market would probably reach $33.9trn by 2026.