65% of Apac institutional investors plan to raise ESG allocation in next 2 years; figure over 80% in Europe, US: PwC report
ESG AUM in Asia-Pacific is expected to more than triple to US$3.3 trillion by 2026
Wong Pei Ting
INSTITUTIONAL investors in the Asia-Pacific are still lagging behind their European and American counterparts in their conviction to raise their environmental, social and governance (ESG) allocations, a recent survey by PwC has found.
The study uncovered that 65 per cent of institutional investors in the region plan on increasing their ESG-related assets under management (AUM) in the next two years, while 83.6 per cent of these investors in Europe and 81 per cent of those in the United States plan on doing so.
Asset managers in the Asia-Pacific are, however, more ready, with 80 per cent planning to increase their ESG AGM, on a par with US asset managers. Asset managers in Europe are ahead, with 89.6 per cent making such plans.
Meanwhile, sentiments around the financial performance of ESG have improved – 64 per cent of the Asia-Pacific’s institutional investors reported that their early ESG investments have already resulted in higher performance yields, compared to non-ESG equivalents.
Asset managers were asked in the survey if they believe integrating ESG into their investment strategy will improve overall returns in the long term, and 96 per cent of those in the Asia-Pacific agreed, versus 90 per cent globally.
PwC’s survey took in the views of 250 institutional investors and 250 asset managers worldwide, which collectively represent nearly half of global AUM.
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With the insights, PwC projected that ESG AUM in Asia-Pacific will grow at a faster clip than Europe and the US, more than tripling to US$3.3 trillion by 2026, from a low base of US$1 trillion in 2021.
In comparison, the ESG AUM in Europe is expected to jump 53 per cent to US$19.6 trillion by 2026, while that in North America is expected to more than double from US$4.5 trillion in 2021 to US$10.5 trillion by 2026.
Compounded, global ESG AUM is expected to hit US$33.9 trillion by 2026, from US$18.4 trillion in 2021. With a projected compound annual growth rate of 12.9 per cent, ESG assets are therefore on pace to constitute 21.5 per cent of total global AUM in less than five years, representing a “dramatic” shift in the asset and wealth management industry, PwC said.
PwC, in its report, highlighted that the tide is “clearly turning” as it was not long ago that more than 80 per cent of asset managers it separately surveyed were either unwilling to accept a reduction in returns or would agree only to a drop of 100 basis points or less. That previous survey was published last December.
Today, three-quarters of institutional investors believe that ESG is part of their fiduciary duty, with 72 per cent setting ESG-related goals for their asset managers at a portfolio level, it stated.
Through its latest survey, PwC also found that 72 per cent of investors in Asia-Pacific are willing to fork out higher fees for ESG performance, although the proportion of those who are willing is lower than the global average of 78 per cent.
Globally, more than half – 57 per cent – of asset managers are looking at charging ESG-based performance fees, compared with 64 per cent in Asia-Pacific, where a 56 per cent majority indicated that a range of 3-5 per cent would be acceptable.
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