Demand for ESG Funds Tops Supply: PwC

Demand for ESG Funds Tops Supply: PwC

U.S., European managers plan to increase their sustainable investments, a survey finds.

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Reviewed by: Zoya Mirza
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Edited by: Zoya Mirza

Demand for environmental, social and governance products is soaring as sustainable investments boost portfolio values, and clients seek places to put their money that don’t punish the environment, a survey has found. 

Growth in ESG investing is expected to outpace the asset and wealth management market as a whole, PwC said in a report released this week. ESG assets under management in the U.S. are expected to double to $10.5 trillion by 2026, according to PwC. Still, only less than half, 45%, of managers are planning to start new ESG funds.  

“Stakeholders and investors are telling us ESG is a priority,” Kevin O’Connell, PwC’s global asset and wealth management ESG leader, said in an email, adding that demand topping supply was not expected: “The asset and wealth management industry has an opportunity to be at the forefront.” 

In the U.S., 81% of institutional investors plan to boost ESG assets over the next two years, PwC said. The U.S. is the world’s largest asset and wealth management market, with $67 trillion managed.  

The share of ESG investments among all assets under management is expected to increase to 22% in 2026 from last year’s 14%.  

ESG-oriented exchange-traded funds have in some cases kept pace with broader stock market measurements. The iShares ESG Aware MSCI USA ETF (ESGU), with $20.9 billion in assets, over the past five years has matched the performance of the S&P 500, while slightly trailing it this year. 

Boosting Demand 

In total, 60% of surveyed investors said ESG has already resulted in higher yields in their investment performance, compared with non-ESG equivalents.  

To meet the high demand, O’Connell suggests asset managers should prioritize converting existing products into ESG-oriented ones. 

The findings come against a backdrop of rising anti-ESG sentiment, where asset managers and politicians alike have criticized firms for prioritizing climate solutions investments over their investors’ profits.  

In August, 19 GOP attorneys penned a joint letter to BlackRock, the largest issuer of ETFs in the U.S., stating that the asset manager was not doing its fiduciary duty when using “the hard-earned money of [the] states’ citizens” to forward its “climate agenda” and not prioritizing financial returns.  

“ESG is not just good for a company's stakeholders, its community, and our broader society, but also for a company's bottom line,” O’Connell wrote. “By integrating ESG principles, the industry is putting action behind their purpose.” 

 

Contact Zoya Mirza at [email protected] 

Zoya Mirza is a markets reporter at etf.com. Her work has appeared in USA Today, Voice of America, and United Press International, among others. Mirza is a graduate of Northwestern University’s Medill School of Journalism. Her past experiences include editorial work in book publishing and conducting political analysis for NGOs and think tanks. Mirza is a passionate bibliophile and collects vintage postcards from every bookstore she visits in a new city.