ESG Assets Under Management Continue to Expand

Source: Morningstar Direct

As climate impacts become ever more evident around the world, global investment in funds with holdings that prioritise environmental, social and governance issues continues to expand.

Asset managers globally are expected to increase their ESG-related assets under management (AUM) to $33.9 trillion by 2026, according to research from PwC. This compares with $18.4 trillion in 2021.

At this pace of growth, ESG assets could make up more than 20% of total global AUM in less than five years, representing a dramatic and continuing shift in the assets and wealth management industry, the group said.

The group’s survey of 250 institutional investors, with combined global assets of $60 trillion, found that nine out of ten asset managers believed that integrating ESG into their investment strategy will improve overall returns.

Asia-Pacific has the fastest percentage growth in ESG AUM. Those in Europe rose 172% in 2021 and could increase by 53% to $19.6 trillion by 2026, PwC said, while those in the US are seen more than doubling to $10.5 trillion.

As investment expands, regulators are increasingly acting to improve sometimes complex and inconsistent regulation and meet the need for more trusted, transparent data on ESG products.

“Regulators around the world are upping the ante on everything from greenwashed fund names to stricter climate target disclosures,,” MSCI said in a recent report. 

Investors are increasingly showing themselves willing to challenge board directors on their companies’ climate performance, including scrutinizing climate risk management disclosures or emissions-reduction plans in some markets, MSCI said.