Category: Global News

Read More
Solar Panel Manufacture At Hevel Group As Demand For Green Bonds Rise

ESG assets may hit $53 trillion by 2025, a third of global AUM

This analysis is by Bloomberg Intelligence Head of ESG and Thematic Investing EMEA Adeline Diab and BI Chief Equity Strategist Gina Martin Adams. It appeared first on the Bloomberg Terminal.

Global ESG assets are on track to exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion in projected total assets under management. A perfect storm created by the pandemic and the green recovery in the U.S., EU and China will likely reveal how ESG can help assess a new set of financial risks and harness capital markets.

No niche at $50 trillion in ESG assets

Assuming 15% growth, half the pace of the past five years, ESG assets under management could climb to more than a third of the projected $140.5 trillion global total by 2025. ESG assets are on track to reach $53 trillion, based on our analysis, up from $37.8 trillion by year-end. They jumped to $30.6 trillion in 2018 from $22.8 trillion in 2016.

While Europe accounts for half of global ESG assets, the U.S. has the strongest expansion this year and may dominate the category starting in 2022. The next wave of growth could come from Asia — particularly Japan. Exclusionary screening based on religious values and other criteria makes up the biggest chunk of ESG investing, at about $20 trillion globally in 2018, according to McKinsey and the Global Sustainable Investment Alliance.

ESG projected global AUM

ESG Projected Global AUM

Source: GSIA, Bloomberg Intelligence

ETFs set for $1 trillion ESG organic growth

ESG exchange-traded funds’ cumulative inflows should surpass $135 billion before 2021, and we expect growth to accelerate, with $1 trillion possibly entering such ETFs globally in the next five years. Of the $203 billion in 2020 ESG fund inflows through 3Q, about $49 billion — or 24% — went into ETFs. The pace isn’t slowing, with investments in ESG ETFs expanding for a 27th straight week and November inflows reaching a monthly record of $13 billion.

ESG ETF assets should surpass $190 billion by year-end and account for almost 13% of global ETF asset growth. Though Europe has dominated ESG ETFs, U.S. products may bring the next wave of organic expansion. As of September, the U.S. ESG ETF market had risen over 318% in 2020 and captured 90% of smart-beta flows.

Trending up for ESG

Trending Up for ESG

Source: Bloomberg Intelligence

Debt may be $11 trillion ESG opportunity

The $2.2 trillion ESG debt market could swell to $11 trillion by 2025, assuming it expands at half the pace of the past five years. Green, social and sustainability bonds are poised to surpass $2 trillion in cumulative volume by the end of 2020, a milestone reached with this year’s meteoric rise of social bonds.

Organic growth in ESG debt is unlikely to slow — driven by companies, development projects and central banks — with pandemic and green-recovery efforts helping to scale up the market in the short term. EU pledges of 100 billion euros to support employment and 225 billion euros to fund a post-pandemic recovery, U.S. President-elect Joe Biden’s $2 trillion energy strategy and the challenge of China’s 2023 green-debt maturities all signal ample room for new issuance.

ESG debt issuance 2020-25 forecast

ESG Debt Issuance 2020-25 Forecast

Source: Bloomberg Intelligence

European ESG gold rush should spread globally

Europe’s ESG fund growth may serve as a barometer for what to expect globally. The region’s ESG mutual funds and ETFs hit the $1.1 trillion milestone in 2020, accounting for almost 10% of total European fund assets, according to Morningstar. Growth was spurred by both client demand and an unprecedented level of product development, with 330 ESG funds launched during the year through 3Q — more than 100 a quarter.

We expect accelerated growth as ESG extends across asset classes and themes. While equities dominate product development, credit represents 20% of new ESG funds. In equity, we see a diversification into thematic products. Climate remains king, accounting for about 25% of ESG funds launched in 2020.

European 3Q sustainable funds launch per theme

European 3Q Sustainable Funds Launch Per Theme

Source: Morningstar Research, Data as of September 2020


Read More

UK government to invest in Asian renewable energy investment trust

The UK government is to put up to £25m of public money behind the launch of an investment trust focused on renewable energy projects in Asia, as it seeks to encourage investors to back green projects.

ThomasLloyd, an infrastructure investment company, announced on Thursday that it aims to raise $300m in a public offering for a new vehicle that will invest in sustainable power infrastructure in Asia’s emerging markets.

In an unusual move, the Foreign, Commonwealth and Development Office (FCDO) said it would invest up to £25m in the launch as part of its efforts to encourage asset managers to support environmental investments in developing countries.

UK retail investors will be invited to join the fundraising alongside the government and other backers, via investment platforms, ThomasLloyd said.

The move, announced by the government during COP26 in Glasgow, comes after chancellor Rishi Sunak laid out his ambition for the UK as a centre of green finance, calling for financial firms to “mobilise private finance quickly and at scale”.

“Asia is the world’s largest and fastest-growing consumer of energy and the largest emitter of CO2,” said Tony Coveney, head of infrastructure asset management at ThomasLloyd Group, citing the region’s rapid population and economic growth as attractive factors for investors.

Emerging markets and developing economies currently hold 67 per cent of the world’s population, but only attract 16 per cent of global clean energy investment, according to the International Energy Agency. Renewable infrastructure investment trusts have surged in popularity among investors lured by their steady income streams and green credentials. Investment trusts of all kinds raised a record £8.71bn this year, but more capital — £1.7bn — was raised in the renewable energy infrastructure sector than any other, according to the Association of Investment Companies (AIC), the trade body for investment trusts.

Investment trusts are a category of UK investment vehicles structured as listed companies and are popular among investors looking to invest in illiquid assets such as infrastructure. They allow investors to enter or exit their positions as the fund keeps hold of its underlying assets.

Mutual funds, by contrast, must generally buy and sell their underlying assets to accommodate investors’ entrances and exits, making it harder to fund long-term projects.

But analysts say investors should approach such long-term investment opportunities with caution. Simon Elliott, head of investment trust research at Winterflood Securities, said: “It can take time for capital to be fully deployed to the point that it starts to produce meaningful returns.”

He warned that the share price of an investment company or trust is often different from the value of its underlying assets, known as its net asset value, “albeit the vast majority of listed infrastructure funds are trading on premium ratings at present”.

ThomasLloyd’s new energy impact trust is targeting a net asset value total return of 10-12 per cent a year “over the medium to long term”. The trust will fund solar, wind and biomass projects and is focused mainly on India, the Philippines and Indonesia, but includes projects in Vietnam and Bangladesh.

The FCDO said that clean energy equities in emerging and developing markets “consistently outperform the MSCI Emerging Markets Index”, providing investors with “yield, diversification and increasingly, impact”. Some climate campaigners are sceptical about the push for financial institutions to drive the net zero transition.

David Barmes, a senior economist at Positive Money, a not-for-profit campaign group, said such initiatives could be “counterproductive” in the efforts to reach net zero, adding that “if the motivation remains profit maximisation and financial returns, then the focus isn’t about staying within planetary boundaries”.