ESG assets surpassed $35trn in 2020, up from $30.6trn in 2018 and $22.8trn in 2016, reaching a third of current total global assets under management, according to the Global Sustainable Investment Association. Assuming 15% growth, half of the pace of the past five years, ESG assets could exceed $50trn by 2025.
Bloomberg Intelligence’s (BI) ESG 2021 Midyear Outlook report also highlighted that the world is on track to have a $1trn ESG ETF market and an $11trn ESG debt market by 2025, as both strategies are becoming ever more popular among investors.
Adeline Diab, head of ESG and thematic investing EMEA & APAC at Bloomberg Intelligence, said: “The pandemic and the global race to net-zero carbon emissions have put ESG criteria into orbit – from niche to mainstream to mandatory. ESG is fundamentally reshaping the financial industry, becoming part of financial reporting.
“This is in part due to mounting scrutiny from regulators, markets being more sensitive to ESG-related news, and asset owners appointing managers on the basis of ESG across asset classes.”
According to the report, ESG ETF inflows are on track to surpass the projected $115bn in 2021, given over 65% of the inflows have already been recorded in the first half of the year. February 2021 saw the highest monthly inflows recorded ($20.5bn), beating the previous record of November 2020 ($13bn).
Diab added: “While Europe has historically led on ESG assets, the US has seen over 40% growth over the past two years and now accounts for $17trn, so nearly half of the global $35trn ESG assets under management. Europe’s ESG product landscape may serve as a barometer for what to expect globally.
“The region’s ESG mutual funds and ETFs accounted for circa 25% of all European products in 2020. Particularly, products are increasingly being rebranded as ESG, as investors seek to attract assets. However, this trend may be a double-edged sword as regulators scrutinise these products more closely.”
The report also noted that the $3trn ESG debt market could grow rapidly to $11trn by 2025, assuming it expands at half the pace of the past five years. Growth is unlikely to slow, driven by companies, development projects and central banks focused on the pandemic and green-recovery efforts, the push to net zero and record low interest rates.
The European Union’s pledge of €100bn to support employment and its €225bn to fund a post-pandemic recovery, US President Joe Biden’s $1.2trn infrastructure strategy and the challenge of China’s 2023 green-debt maturities all signal ample room for new issuance, according to the report.
Diab stated: “ESG debt is an exciting trend – it is an innovative approach for corporates and markets to harness capital to drive ESG adoption and finance the energy transition, for example. We expect this momentum to escalate rapidly given the demand for quality, ESG-compliant debt from institutional investors.
“Sustainability-linked bonds and loans have emerged as a new asset class and helped to spur this momentum of growth – they already reached 50% of total green bond sales within the last four years.”