Sustainable funds market to grow 150% by 2025

The industry is looking at younger clients as a source of growth

Despite the anti-ESG movement and struggling performance for sustainable funds this year, investment management executives have predicted the ESG market will grow by 150% by 2025.

The findings were revealed in a Dow Jones report published on Wednesday, following a survey of 200 senior leaders at US and UK investment management firms in April and May. The respondents were all involved in sustainable investing.

Sustainable investments currently represent about 6% of assets in the portfolios of the companies surveyed, with that proportion estimated to hit 15% over the next three years.

Much of that growth would occur amid heightened regulation in the US. Public companies will likely have to disclose their greenhouse gas emissions, and new rules for ESG funds and financial advice will take effect.

Just over half of respondents to the survey said they had concerns with ESG data quality, with 45% taking issue with the timeliness of data that is publicly available and the consistency and scope of it (42%), according to the report. However, 60% of investment company executives said they think forthcoming regulations will require their businesses to take ESG more seriously. Another 58% said there will be more transparency around ESG ratings.

Nearly two thirds of investment professions said they think the positive effects of ESG investments are important, although more than half said clients could be more educated about sustainable investing. Further, 50% said that “for sustainable investments to be a success, investment management companies also need demand from retail and institutional investors”.

Increasingly, that demand is likely to come from younger clients, the survey indicated.

In the US, more than half said they are focused on Millennials and Gen Xers for ESG growth and future investment, with only 15% focused on Gen Z and 12% on Baby Boomers, according to the report.

And, despite rapid growth in product development, there appears to be more room for additional ESG-themed funds. Almost half (44%) of those surveyed said the availability and variety of sustainable funds on the market posed a challenge in building portfolios with strong performance.