Sustainable investment product assets in Europe are expected to reach € 7.6 billion over the next five years, outnumbering conventional funds, as investors’ growing interest in risks, including climate change and social inequalities, propels these strategies into the mainstream.
Environmental, social and governance investing, which aims to go beyond traditional financial metrics when selecting stocks, was previously a niche area of fund management.
But according to a PwC study, at best, ESG funds will experience a jump of more than three times their assets by 2025, increasing their share of the European fund sector from 15% to 57%.
The change could have big implications for businesses across Europe by reorienting capital towards sustainable activities and forcing companies to be transparent about everything from their environmental impact how they treat employees.
However, it could also expose investors to greenwashing, while fund managers make exaggerated statements about their ESG credentials in an attempt to establish themselves in the market.
Olivier Carré from PwC, one of the authors of the research, said that the explosion of ESG funds was the most significant development in European asset management since the advent of UCITS, the flagship framework for funds. retail store created 35 years ago.
“It represents a unique opportunity in a century – not just for [asset management] industry, but for the future development of the whole of the European continent, “he said.
Big investors are driving the trend. More than three-quarters of the 300 investors, including pension funds and insurance companies, polled by PwC said they would stop buying conventional funds in favor of ESG products by 2022.
A new impetus had come from the next EU rules on green finance, growing evidence that ESG risk management increased returns and investors ” increased concentration on sustainability in the aftermath of the coronavirus pandemic, Carré said.
Even in PwC’s baseline scenario, sustainable funds would increase their share of the European fund market to 41%, with assets increasing from € 1.7 billion to € 5.5 billion.
PwC expects that a significant portion of the growth in assets will come from the reorientation of existing funds by asset managers. This could be by redesigning a fund to place ethical concerns at the heart of its investment strategy or simply by incorporating ESG considerations into stock selection decisions, alongside other factors.
The new EU rules aim to hold asset managers to account on their ESG promises by forcing them to provide detailed information on the sustainability of their funds, whether they are pure ESG funds or integrated ESG funds.
However, there are concerns that the rules do not go far enough to prevent asset managers from overestimating their ESG efforts in marketing materials.
The French financial regulator recently cracked down on funds that present themselves as pure ESG funds when sustainability is only a minor part of their investment process.
“We felt that [in some cases] asset managers do not take ESG factors significantly into account, but they state in marketing documents that ESG is at the heart of their investment strategy, ”said Philippe Sourlas, head of asset management at the Autorité des marchés financiers.
“We want to make sure that investors can distinguish between funds where ESG plays a small role and funds where it is the core strategy,” he added.