Assets in ESG ETFs, mutual funds, private funds and institutional mandates may reach US$30 trillion by the end of the decade, according to a new report by Broadridge Financial Solutions.
Currently, assets in these ESG investments exceed US$7.8 trillion worldwide with more than US$1.3 trillion of net inflows since the start of 2019.
Broadridge has forecast that the assets could grow to between US$14-19 trillion by 2025 and US$20-30 trillion by 2030.
The lower end estimates assume that the share of industry flows captured by ESG will remain unchanged, while the higher end estimates would see sustainable investments account for 28 per cent of total assets under management compared to 11 per cent currently.
Asset managers would be set to record up to US$9 trillion of net new inflows under the high-end forecast.
In the first nine months of this year, US$577 billion of net flows into ESG ETFs and mutual funds were recorded, well ahead of the US$355 billion recorded in 2020.
“ESG strategies accounted for just 11 per cent of overall mutual fund and ETF assets but captured 30 per cent of inflows during the 12 months through September 2021,” said Broadridge Financial Solutions head of ESG insights Jag Alexeyev.
“While growth remains strong, the complexities and costs of ESG implementation have risen, and fund selectors have begun to ask harder questions.”
For actively managed strategies, the ESG share of net flows was only 9 per cent in Asia-Pacific, lagging significantly behind local European funds with more than 100 per cent and European and international markets with 62 per cent.
The firm found that fund selectors in Australia cited ESG as their top need for innovation from asset managers, while thematic strategies ranked higher across the rest of the Asia-Pacific.
Greenwashing was raised as a major issue, particularly in Europe, while there were less concerns in the Asia-Pacific region.
“Greenwashing has emerged as a key reputational risk that firms must address,” said Mr Alexeyev.
“Improving a manager’s sustainable investment capabilities, enhancing transparency, and amplifying communication of results can help establish credibility and strengthen client relationships.”
In a survey of global institutional and wholesale investors, nearly half said that concerns surrounding performance and a lack of robust data were major barriers to ESG adoption.
