European private market Environmental, Social, and Governance (ESG) assets will “skyrocket” to €1.2 trillion by 2025 — accounting for 27.2 per cent to 42.4 per cent of the entire private market (PM) industry’s asset base, up from 14.8 per cent in 2020, finds PwC.
The statistic, which appears in PwC’s report entitled EU Private Markets: ESG Reboot, reflects the continuing change that ESG is creating for the European private market landscape.
Out of this €1.2tn figure — 75.7 per cent will stem from new funds raised, with existing and reclassified funds accounting for the remaining 20.9 per cent and 3.4 per cent of assets, respectively.
PwC says the “best-case forecast” would see private market ESG funds “completely redefining Europe’s existing PM landscape” with general partners (GPs) “fully embracing and adapting to the ESG revolution”.
Should this scenario materialise, private market ESG assets under management (AuM) will account for 42.4 per cent of European PM assets, says PwC.
PwC describes this phenomenon as an “asset explosion” that will see Europe alone making
up between 31 per cent and 35.9 per cent of global ESG PM assets — positioning the region at the “pinnacle” of the global ESG landscape, according to PwC.
PwC’s survey results also indicate that 100 per cent of the limited partners (LPs) that do not
invest in ESG PM funds plan to do so in the coming 24 months.
Some 63 per cent of the investors surveyed plan to increase their allocation to ESG funds in the same timeframe — with over half targeting increases of between 10 per cent and 20 per cent.
When discussing private equity (PE), PwC predicts PE ESG AuM will also skyrocket to €292 billion by 2025 under a base case scenario — making up 20.7 per cent of total PE assets.
Out of the 200 LP respondents PwC asked within the financial industry, 33 per cent were public pension funds, 20.5 per cent were private pension funds, 15 per cent were endowments, 13.5 per cent were family offices, 12.5 per cent were insurance companies, and 5 per cent were sovereign wealth funds.
Out of the 200 GP respondents, 51.5 per cent were private equity funds, 22.5 per cent were real estate funds, 18 per cent were infrastructure funds and 18 per cent were private debt funds.
Will Jackson-Moore, global private equity, real assets and sovereign funds leader
at PwC, comments: “In this fast-evolving landscape, GPs will be increasingly required to adapt along with the winds of change, positioning ESG at the centre of their investment. Those that successfully harness ESG’s sheer value creation and protection potential stand to secure — or even enhance — their competitive positioning.”
Olivier Carré, financial services market leader and sustainability sponsor at PwC Luxembourg, says: “GPs, on average, benefited from a premium of between 6 per cent and 10 per cent following ESG implementation within their investment methodologies.”
He adds: “While this is by no means negligible, we strongly believe that GPs with strong ESG skills and focus will not only have better investment performance, but also higher shareholder and stakeholder recognition.”
