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ESG reporting is becoming essential for companies seeking institutional investment

“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,” the report said

Environment

Indeed, investment assets with an ESG tilt will make up between 41% and 57% of total mutual fund assets in Europe by 2025, according to a large poll of investment managers.

This will be a significant rise from the 15.1% level at the end of last year.

A combination of several catalysts such as investor demand, regulatory overhaul and societal shifts are set to usher in the greatest shift the European asset management industry has ever undergone, PwC said as it published the survey of 200 asset managers, 300 institutional investors and more than 800 retail investors across the continent.

This found that more than three-quarters of institutional investors surveyed said they plan to stop buying non-ESG products within the next two years, with for equity investors this was over 90%.

ESG equity funds will see a compound annual growth rate of 26.8%, with assets quadrupling to more than €3.6trn by 2025, the researchers forecast, with bond funds growing by almost a third to around €1.6trn.

What’s more, the fund management industry is increasingly distancing itself from a previously common view that ESG assets were worth but underperforming and this is spearheading a move towards more ESG-related strategies.

“Sustainability might not be the golden ticket to outperformaner but could very soon be widely accepted as a course of downside protection against ESG related risks,” said the authors of the report, which was published on Monday.

“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.”

PwC said Europe is the main ESG driving force, with the 4,741 ESG mutual funds in the continent, which together hold almost 70% of global ESG assets.

Reporting requirements

Also on Monday, the Investment Association (IA), called for London's larger listed companies to step up their level of environmental disclosures.

The investment management industry body said the Financial Conduct Authority should force all companies on the London Stock Exchange with a 'premium' listing to report on their climate governance and other related metrics.

Among FTSE 100 companies, 77 so far have implemented the Task Force on Climate-related Financial Disclosures (TCFD) framework, the IA said, though just over half had published reports covering all four of the key categories – climate governance, strategy, risk management, and metrics and targets.

The IA said such disclosure “will enable investors to price climate risk effectively into their investment decisions and as long-term stewards to provide support and challenge to companies to transition to more sustainable business models”.

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