While ESG assets have been resilient despite economic and geopolitical uncertainty, the 70 per cent slower growth in assets under management vs. the 2016-20 surge reflects its maturity, according to Bloomberg Intelligence’s ESG AUM H2 Outlook.
For BI, ESG debt remains a bright spot and could expand to 1.8 per cent of total issuance, led by green bonds. In contrast, ESG ETFs face a mixed outlook, though BI projects ESG will marginally increase its share of ETFs.
ESG AUM to hit USD40 trillion by 2030
Adeline Diab, BI Director of Research & Chief ESG Strategist, says: “ESG assets have been resilient despite economic uncertainty, reaching USD30 trillion in 2022 according to the GSIA. Cutting through the polarization engendered by elections, we expect the market to mature and gain credibility, crossing USD40 trillion by 2030, with more harmonized regulations and investor scrutiny on sustainability claims.
“We project a lower 3.5 per cent CAGR vs. 12 per cent in 2016-20 when an ESG “gold rush” was accompanied by pervasive greenwashing. Europe may keep pace, backed by institutional demand, while Australia and New Zealand could expand faster as ESG gains traction. In contrast, US growth may fall due to market concentration and the backlash. As the market consolidates, emerging themes and robust demand should propel growth, with the BI ESG Market Navigator suggesting 85 per cent of investors plan to increase ESG AUM.”
According to the BI report, Europe’s 45 per cent share of ESG assets makes it the largest market and it is set to remain on top as BI expects its growth to keep pace with the global rate. US ESG assets were halved in 2022 to USD8 trillion, just over 25 per cent of the market, after the GSIA’s decision to exclude investments with vague ESG standards, and its share may reduce further based on BI’s slower growth projection.
Japan, Canada and Australia are small but fast-growing markets. Japan’s 50 per cent expansion to USD4.3 trillion in 2020-22 boosted its global share to 14 per cent. Though these countries may continue to outstrip the global expansion, BI expects their CAGRs to stabilise at 6 per cent as regulation and mounting scrutiny drive market consolidation.
ESG debt issuance is set to continue growing at a moderate pace despite macro uncertainty, while green bonds remain dominant. In the last decade, ESG debt’s 40 per cent CAGR outpaced the overall market’s 6 per cent rate and BI forecasts ESG debt at 1.8 per cent of total issuance in 2030, following a surge from 0.4 per cent to 1.5 per cent since 2019 despite inflation and higher interest rates in the last two years.
USD665 billion ESG ETFs to accelerate to 6 per cent ETF AUM share by 2030
ESG ETFs worth USD665 billion in AUM have stabilised at about 5 per cent of global ETF assets, following a surge from just 2 per cent in 2019, adds BI.
Adeline Diab, BI Director of Research & Chief ESG Strategist, says: “We expect the ESG share to embark on an incremental growth trajectory, reaching 6 per cent by 2030 before levelling off. Our forecast is based on ESG ETFs’ current 20 per cent annualised growth rate vs. 15 per cent for the overall ETF market and assumes that the former will gradually slow down to be in line with the overall ETF market by 2030 as investor demand remains robust while stronger global regulation may boost credibility even though it may slow the pace of new product launches.
“EMEA makes up 70 per cent of ESG ETFs’ USD665 billion in assets, followed by the Americas with an almost 20 per cent share by geo-focus. Higher growth in the fast-expanding APAC and Japan regions could bring their share toward 15 per cent in 2030 from 10 per cent in 2024.”
