European ESG market to hit EUR 1.2trn by 2025 – survey

Greg Gille
11 October 2021

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European private market ESG assets could skyrocket to EUR 1.2trn by 2025, according to a PwC Luxembourg forecast.

The forecast was made in a new report launched by PwC Luxembourg and titled EU Private Markets: ESG Reboot. The full report examines the rise of ESG across private equity, private debt, real estate and infrastructure. The data and the findings were procured from a survey of 200 GPs and 200 LPs representing EUR 46trn in global assets under management (AUM).

PwC's best-case forecast would see ESG funds redefining Europe's existing investment landscape, with GPs "fully embracing and adapting to the ESG revolution". Under that model, private market ESG AUM would increase fivefold in less than five years, exceeding EUR 1.2trn and accounting for 42.4% of European private market assets. Three quarters of that EUR 1.2trn figure would stem from new funds raised, with existing, and reclassified funds accounting for the remaining 20.9% and 3.4% of assets, respectively.

The LP survey part of the report shows that 100% of the LPs that do not invest in ESG funds plan to do so in the coming 24 months. Nearly two thirds (63%) of the investors surveyed plan to increase their allocation to ESG funds in the same timeframe – with more than half targeting increases of between 10% and 20%.

Infrastructure is the asset class where ESG could end up playing the greater role, with PwC's best-case scenario showing that ESG AUM could reach EUR 251.6bn by the end of 2025, representing 40.6% of total infrastructure AUM.

That proportion is smaller for private equity under the best-case model, with ESG assets accounting for up to 20.7% of overall AUM within the next five years. But at a potential EUR 292bn, the potential ESG AUM would lead the private markets field.

More than 90% of the potential EUR 193.7bn increase in ESG assets for PE is expected to stem from new funds – this would represent an opportunity in excess of EUR 175bn for the most proactive GPs, PwC pointed out.

"GPs are waking up to the fact that ESG provides a strong case for alpha," said Olivier Carré, financial services market leader and sustainability sponsor at PwC Luxembourg. "This is illustrated by the fact that GPs, on average, benefited from a premium of between 6% and 10% following ESG implementation within their investment methodologies. While this is by no means negligible, we strongly believe that GPs with strong ESG skills and focus will not only have better investment performance, but also higher shareholder and stakeholder recognition."