Asset managers globally are expected to increase their ESG-related assets under management to $33.9 trillion by 2026, up 84 per cent from $18.4 trillion in 2021, a new report by professional services firm PwC reveals.

ESG assets are on pace to constitute 21.5 per cent of total global AUM in less than five years.

This represents a dramatic and continuing shift in the asset and wealth management industry according to PwC’s Asset and Wealth Management Revolution 2022 report.

The report also captures the views of 250 institutional investors and asset managers worldwide, representing nearly half of global AUM.

Scott Watson-Brown, PwC Bermuda asset and wealth management leader, said: “Our survey highlights a surge in demand for ESG funds that exceeds almost all previous expectations. Over the next two years, eight in 10 institutional investors plan to increase their allocations to ESG products.

“What’s more, nearly nine in 10 have either already rejected or stopped investing with a specific asset manager (39 per cent) or would consider doing so (50 per cent) due to shortcomings in the manager’s ESG investment strategies.

“The investor focus on ESG is transforming how value is defined and delivered within the asset and wealth management industry. The longer-term winners will be those asset managers who differentiate their strategy and deliver on their purpose.

“Capturing the full potential of ESG demands a clear vision of what the business stands for, a strategy for change and a durable governance, accountability and reporting framework to make sure that what is promised in terms of ESG is in fact delivered.”

The report said that ESG AUM would outpace the broader AWM market, reaching $10.5 trillion in the US and $19.6 trillion in Europe by 2026.

It added that ESG investing was reporting higher performance yields, compared with non-ESG equivalents (according to 60 per cent of institutional investors).

Demand for ESG investment products is outstripping supply with 30 per cent of investors struggling to find attractive and adequate ESG investment opportunities.

Further, the report said:

● Nearly nine in ten of institutional investors surveyed believe asset managers should be more proactive in developing new ESG products.

● Less than half of managers said they were planning to launch new ESG funds.

●The majority of asset managers surveyed are seeking to convert their existing products so they can be labelled as ESG-oriented.

PwC said that the asset manager survey sample included 250 respondents, accounting for a total global AUM of approximately $50 trillion. The respondent base was largely cross-sectional in terms of size and tranche.

The institutional investors survey consisted of 250 respondents, with combined global assets of $60 trillion. Respondents covered a broad spectrum of AUM size, with more than half boasting assets of more than $10 billion. Public pension funds and private pension funds together accounted for more than half of the institutional investor respondent base.