Asia Pacific is projected to have the fastest growth rate of any major region in ESG assets under management (AUM) by 2026, rising to $3.3trn from $1trn last year, according to a study by PwC.
Even under a worst-case scenario, overall ESG AUM in Asia Pacific is forecast to rise to $2.1trn within the five-year period, while the best case scenario has the figure reaching $5trn.
In contrast, AUM under PwC’s base case in Europe is projected to rise to $19.6trn from $12.8trn, while for North America these figures are $10.5trn and $4.5trn respectively.
Meanwhile, in Latin America, PwC expects AUM to rise to $200bn from $25bn currently, while for Middle East and Africa, the figures are $300bn and $100bn respectively.
PwC noted that strong growth in the asset and wealth management industry over the past 10 years had mostly been driven by rising asset prices and flows, but now ESG was set to become “a key market driver” as headwinds threaten the global economy.
Overall, ESG AUM is expected to grow at a much faster rate than the broader asset and wealth management, with its share of overall AUM rising to 21.5% by 2026 from 14.4% in 2021.
“As the AWM [asset and wealth management] industry and its investors emerge from the Covid-19 pandemic with renewed purpose, ESG funds have moved from the margins and into the mainstream. One of the most striking findings…is the exponential rate at which this transformation is taking place, as established markets grow and new markets come on stream,” PwC wrote.
PwC noted there was a lot of pent-up demand among investors for ESG products, despite the recent anti-ESG backlash illustrated by a number of US states banning such investments from their pension funds.
According to the PwC study, almost nine in 10 institutional investors believe that asset managers should be more proactive in developing new ESG products, while only 45% of asset managers are planning to launch new ESG funds.
In Asia Pacific, the figures were more palatable as 64% of asset managers surveyed were planning to launch new products, while 68% were planning to retrofit existing products to become ESG compliant.
PwC surveyed 250 asset managers and 250 institutional investors for the study.