ESG May Surpass $41 Trillion Assets in 2022, But Not Without Challenges, Finds Bloomberg Intelligence

The $4 trillion ESG debt market could swell to $15 trillion by 2025

ESG Debt and ESG ETF tracked in Bloomberg Intelligence bull-case scenario show no sign of slowing

London, January 24, 2022 – Global ESG assets may surpass $41 trillion by 2022 and $50 trillion by 2025, one-third of the projected total assets under management globally, according to a new report by Bloomberg Intelligence (BI). This trend continues the rise of ESG assets after they surpassed $35 trillion in 2020.

Adeline Diab, Director of Research ESG at Bloomberg Intelligence said: “While ESG investing has gained traction by becoming mainstream and even mandatory in certain jurisdictions, it does not come without challenges. Scrutiny is going play an important role as regulators tackle the risk of greenwashing.”

According to BI, ESG assets surpassed $35 trillion in 2020, up from $30.6 trillion in 2018 and $22.8 trillion in 2016, to become a third of the total global assets under management, according to the Global Sustainable Investment Association, in line with Bloomberg Intelligence’s base-case scenario. The report highlights that, assuming 15% growth, a third of the pace of the past five years, ESG assets could exceed $41 trillion by 2022 and $50 trillion by 2025.

Europe accounts for half of global ESG assets and dominated the market until 2018. The U.S., however, is taking the lead with more than 40% growth in the past two years and is expected to exceed $20 trillion in 2022, even if its pace of growth halves this year.

ESG exchange-traded funds’ (ETFs) cumulative inflows surpassed Bloomberg Intelligence’s projected $121 billion in 2021 based on their bull-case scenario, with over $75 billion recorded in the first half of the year. According to the report, the pace isn’t slowing, with investments in ESG ETFs expanding for more than 38 straight months.

Adeline Diab added: “The trend of growing ESG ETFs is in line with our bull-case scenario, which assumes a 35% growth, and we expect $1.3 trillion entering such ETFs globally by 2025. ESG ETF cumulative assets reached over $360 billion in 2021. While this represents almost 4% of global ETF assets, ESG has grabbed over 10% of the global ETF flows in 2021. Though Europe dominated ESG ETFs so far, the U.S. have led the wave of expansion.”

Meanwhile, the $4 trillion ESG debt market outshined Bloomberg Intelligence’s bull-case scenario, which could swell to $15 trillion by 2025, assuming it expands at third the pace of the past five years. Organic growth won’t slow, led by companies, development projects and central banks. Europe is set to remain the main ESG debt issuance engine, but the next wave of growth will be diverse. The EU 1 trillion- euro “Fit for 55” package, U.S. infrastructure or Build Back Better Plans and emerging markets’ sixfold green bonds surge over the past 4 years all signal ample room for new debt issuance.

Green bonds appear unstoppable in light of several upcoming catalysts such as the EU Taxonomy. Sustainability-linked bonds and loans are emerging as a new asset class and have helped spur another wave of growth by opening the tap to a broader set of industries and objectives. They reached 80% of the total green bond and loans sales within four years. However, such trend points to new challenges, as the availability of ESG debt instruments increase, so do the risks of greenwashing due to a lack of auditing and certifications.

Finally, the expansion of Europe’s ESG products may serve as a barometer for global markets. The region’s ESG mutual funds and ETFs accounted for about 25% of all European products in 2020, with funds rebranded as ESG by asset managers contributing to one-third of the growth.

Adeline Diab stated: “We expect ESG funds in Europe to double their market share, with re-branded products making up half by 2025, spurred by investor demand and unprecedented levels of development. However, the trend may be a double-edged sword. Regulation will play an important role as scrutiny and requirements increasingly seek to tackle the risk of funds’ greenwashing.”

The complete BI ESG AUM data is available to Bloomberg Terminal subscribers via {BI<GO>}.

Contacts
Veronika Henze
Bloomberg Intelligence
+1-646-324-1596
vhenze@bloomberg.net

Samantha Boyd
Bloomberg Intelligence
+1-202-807-2150
sboyd49@bloomberg.net

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