Increasing demand from institutional investors has contributed to the surge in the ESG AUM

According to a research report published by Azoth Analytics in December 2020, the Global Environmental, Social and Governance Market stood at around USD 38 trillion in assets under management (AUM).

ESG stands for Environmental, Social and Governance and any company which is doing well currently and hopes to sustain this progress in the future will be mostly compliant with ESG. ESG factors provide insights into the quality of a company’s management, culture, risk profile, and other characteristics. With the growing focus on social responsibility globally, many investment management companies are including environmental, social, and governance aspects in their decision-making, aided by emerging technologies such as AI and advanced analytics.

Among the Investor segment in the Environmental, Social and Governance market (Retail and Institutional), Institutional Investor segment leads the market. Institutional investors increasingly play a crucial capital allocation role in modern capital markets. Strong ESG performers will be better placed to reshape competitive advantage and, ultimately, create long-term value for the institutional investors. Increasing demand from institutional investors has contributed to the surge in the industry's assets under management (AUM) and revenue during the early portion of the period.

From 2015 to 2019, there has seen a surge in the growth rate in the ESG market as companies came up with new ideas and new products in field of Environmental, Social and Governance. For instance, JP Morgan Asset Management (JPMAM) has launched a sustainable ETF that aims to achieve a meaningful reduction in carbon intensity without relying on exclusions or sector deviations.

Based on Fund (Public Equity, Fixed Income, Real Estate, Private Equity and Others), Public Equity segment gains a considerable share. In the Public Equity industry, ESG is becoming an important part of the decision-making process for investments. According to a research by BCG, among 343 firms from 5 sectors, companies with strong ESG ratings get higher marginal return on the long term. In 2017, the world’s largest pension fund (Japan’s Government Pension Investment Fund) with AUM of over 1.5 trillion announced their strategy to incorporate ESG factors as a top priority, and to allocate 10% of the general funds to sustainable investments.  

Based on Sector (Information Technology, Healthcare, Finance, Communication Service, Consumer Staples, Industry and Others), Information Technology segment gains a considerable share. Technology is enabling a transformational shift in ESG. The ESG data is often scattered across various departments and geographical locations making it difficult to collect. Even when the data is collected, the quality and accuracy of such data are suspect. Technology can enable companies to digitize the entire process of data collection and trace the data back to its source. Last-mile data collection enables transparency and accountability for the data.

The Azoth Analytics Research Report titled “Global Environmental, Social and Governance (ESG) Market – Analysis By Investor, Fund, Sector, By Region, By Country (2020 Edition): Market Insights, Covid-19 Impact, Competition and Forecast (2020-2025)” has been analysed By Investor (Retail and Institutional), By Fund (Public Equity, Fixed Income, Real Estate, Private Equity, Others) and By Sector (Information Technology, Healthcare, Finance, Communication Service, Consumer Staples, Industry, Others). The ESG market has been assessed By Region (North America, Europe, APAC) and By Country (United States, Canada, United Kingdom, France, Germany, Switzerland, Netherlands, China, Japan, Taiwan) for the historical period of 2015-2019 and the forecast period of 2020-2025.