Professional services firm PwC, in its newly released report, predicts an enormous shift in the private markets towards ESG investments.
The report, titled ‘GPs’ Global ESG Strategies: Disclosure Standards, Data Requirements & Strategic Options’, was prepared by PwC Luxembourg and forecasts a significant increase in ESG-focused private market assets under management (AUM).
The report surveyed 600 global participants, 300 General Partners (GPs) and 300 Limited Partners (LPs), across the U.S., EU, UK, and Asia Pacific. The anticipation is that ESG-focused AUM, which has seen a steady rise from $600bn in 2015 to $1.1tn in 2021, will skyrocket further with a base case AUM prediction of $2.7tn by 2026, potentially reaching as high as $4.5tn.
PwC provides a wide range of industry-focused services for public and private clients in order to build public trust and enhance value through the application of their professional perspective and strategic advice. This report specifically focusses on the growing ESG trend, an approach to investing that aims to consider both financial return and sustainable, ethical impacts.
The report highlights the intention of investors to pivot towards an ‘ESG or nothing’ strategy. A considerable 76% of LPs disclosed plans to stop investing in non-ESG private market products, with a similar percentage of GPs intending to halt their offering of non-ESG products. PwC expects the funding to be used to expand the reach of ESG investments and enhance the associated technological and workforce capabilities.
In a supplementary insight, the report scrutinised investors’ perspectives on the evolution of ESG regulations across their respective markets. Interestingly, most investors revealed a generally positive outlook on the direction of recent regulatory developments. The report revealed geographical variation in satisfaction levels, with US investors displaying the highest levels of optimism around the impact of ESG regulations, while Asia Pacific LPs were the least satisfied.
PwC Luxembourg’s Financial Services Market Leader, Olivier Carré, expressed the potential for a substantial transformation in the private markets landscape driven by ESG factors. Carré emphasised that those GPs who fail to adapt to these changing investor demands may lose business opportunities, as ESG-oriented investors are swiftly increasing worldwide.
The report also investigated ESG regulatory-related challenges faced by private market investors. These challenges often revolve around the conflicts between regional and national regulations, as well as the potential burdens of compliance requirements. These challenges are considered particularly significant for smaller investors and GPs looking to meet data and reporting requirements.
PwC has a long-standing presence in providing professional services globally. This new report further strengthens PwC’s position as a thought leader in predicting and understanding the evolving dynamics of financial market trends and strategies.
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