All global asset managers attending a PwC webcast on the impact of environmental, social, and governance (ESG) on the asset and wealth management industry believe that ESG investing will change the global economy. Attended by over 100 senior global asset managers, nearly a quarter (23%) of respondents indicated that ESG investing will completely change the global economy in the next 3-5 years, with a further 77% saying it would have an impact of a more moderate nature.
Along with these views, the key issues discussed in this well-attended webcast included the scale of the investment revolution that ESG could bring, the growth expected, key steps for the industry to grow and the role that Ireland can play in that development.
ESG has gone from a trend to the biggest revolution in the European funds industry since UCITS and AIFMD.
COVID-19 has seen the ESG agenda boom, as the trend towards ESG investing has accelerated towards new ways of doing business. The rise of ESG has also been bolstered by significant societal changes which has contributed to increased levels of importance to sustainable finance and ESG.
As a result of increased investor appetite and pushed by regulation in Europe, we are seeing a shift in the market in the last three years. Investors want to invest in more sustainable products and services because it is the right thing to do. Millennials are also influencing the market as they look for products and services that benefit society. In response, asset managers, who see it as their ‘responsibility’ to develop an ESG offering for a better environment, are developing ESG products.
At the same time, the EU’s desire to become the first climate neutral continent by 2050 has also had an impact on the momentum in this area. With no slow down of the regulatory agenda, there appears to be a shift of EU policy makers to embed ESG as a central tenet of the future investment landscape. This marks a sea change in investment approach and to the competitive environment for asset and wealth managers – a change that represents an opportunity for every business that will resonate long after the end of this decade.
Olwyn Alexander, PwC Global Asset & Wealth Management Leader and Partner at PwC Ireland said: “ESG is nothing less than an all-encompassing shift in the investment landscape; placing financial and non-financial performance criteria on a level playing field. And Ireland has a great opportunity to be a centre of excellence for this rapidly growing area. But we need to focus on upskilling and quality data as well as scaling up for new products and services. To achieve this ambition, there is a need for a very clear national sustainable finance roadmap including public private partnership.”
“The Poll result highlights the right balance between the ambition of ESG improving the world we live in while also recognising the challenges in addressing ESG in territories. There is clearly more investment and effort needed to move the needle, switching energy sources and rethinking the old ways of doing things. It is also critical that quality metrics are developed that correctly measure and report ESG performance in accordance with agreed standards.”
“It’s also imperative to fully integrate ESG throughout the business: Integrating ESG right across the value chain, from setting overall business strategy to reporting and disclosure of ESG metrics is imperative.”
PwC’s recent report ‘2022 – The growth opportunity of the century: Are you ready for ESG change?” further confirms that ESG investing will reshape finance. According to PwC’s report, 57% of mutual fund assets in Europe will be held in funds that consider environmental, social and governance factors by 2025 or €7.6, up from 15.1% at the end of last year. ESG equity funds will see a compound annual growth rate of 26.8%, with assets quadrupling to more than 3.6 trillion euros by 2025. The vast majority of institutional investors surveyed in the report expect to see a convergence between ESG and non-ESG products by 2022 - 77% of them plan to stop buying non-ESG products in the same year. But only 14% of asset managers plan to stop launching these products by that time highlighting a key disconnect.
While asset managers have taken some actions - for example, launching new funds with sustainable mandates and repurposing funds - the speed and scope of embracing the ESG revolution needs to accelerate, according to views expressed by industry experts in the discussion. There is an urgent need for asset managers to actively endorse the ESG trend and step-up their strategic measures within their business and throughout their operations, not just in the front office.
The webcast highlighted the significant shortage of ESG skills and capability. There is a war for talent for people who have sustainable finance expertise right now. However, it will take some time to build this critical talent pipeline. There is also a great need for good quality data to facilitate trust in reporting. The ESG data constraints that asset managers face centre mainly on inaccuracy and non-alignment. This impacts the quality of benchmarking, impact evaluation, risk management etc. Upskilling and the management of ESG data will be two of the key success factors for asset and wealth managers leading the ESG competition over the coming 3-5 years. New products and services cannot be developed without the critical skills and quality data.
The webcast heard that, in particular, Ireland has a clear opportunity to be a centre of excellence for ESG fund administration. Ireland currently has 5.6% of global ESG assets under management by domicile according to PwC’s recent report** in this area.
Trish Johnston, PwC Ireland Asset & Wealth Management Leader, concluded: “As a world class centre for funds administration with a highly skilled talent pool and continued access to the EU market, Ireland can be a global centre for ESG. We’ve a proven track record for innovation and tech right here in Ireland, and can achieve exponential growth in this market.
“We are on the brink of one of the greatest shifts in the European asset and wealth management industry. Asset managers can change the world for the better by rechannelling capital towards sustainable businesses and innovation, contributing to the creation of a low-carbon, climate resilient and robust economy.”
The webcast was hosted by PwC Ireland on 12 November 2020 focusing on ESG in asset management and was attended by over 100 senior global asset managers.
Carried out by PwC entitled: ‘2022-The growth opportunity of the century – Are you ready for ESG change?’ the report quantifies and assesses Europe’s dominance in the global ESG sphere, identifies any shortcomings and emphasises the urgent need for asset managers to embark on full-scale ESG integration both within their business strategies and operations. The report also also features a survey of 200 asset managers, 300 institutional investors and more than 800 retail investors.
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