Demand for ESG Funds Tops Supply: PwC
U.S., European managers plan to increase their sustainable investments, a survey finds.
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]
