In the chart above, you can see how ESG commitments have steadily increased over time, becoming a key part of the alternative investments landscape. With the global pandemic, aggregate capital raised for both non-ESG and ESG funds decreased in both 2020 and 2021. However, as ESG becomes more important for investors and fund managers, the general upward trend for ESG - in relation to overall fundraising commitments made - is likely to continue.
In the chart below, you can see how each asset class fares in terms of ESG committed firms, in comparison to non-ESG committed firms. Private equity currently has the highest amount of AUM under ESG commitment by quite a large margin, followed by private debt and real estate respectively.
Institutional investors have been at the forefront of ESG investing initiatives and continue to drive growth in the sector. More than a third of investors surveyed by Preqin have stated that ESG will become a bigger part of the industry in the next three years. With 80% of investors intending to have an ESG plan in place by 2023, this growth shows no signs of slowing down.
In this lesson, we took a journey through time to discover how ESG evolved from a niche form of investment to global finance mainstream. Until recently, the largely unregulated alternatives market has avoided widespread scrutiny from investors. Now however, investors are requesting more transparency from the funds they invest in, and industry regulation has moved into the spotlight.