Private market ESG funds expected to surpass €1.2trn by 2025, fuelled by private debt growth

Private debt ESG assets under management are forecast to hit €78.8 billion by 2025

Private market ESG funds in Europe are expected to soar past €1.2 trillion by 2025 and account for 42.4% of the continent’s total private market industry, according to PwC Luxembourg.

A report by the research firm, EU Private Markets: ESG Reboot, states that part of the reason for this is the slow but steady rise in private debt ESG assets under management. These reached €23.1 billion in 2020, having risen from €21.3 billion the year before.

Yet, ESG is not as popular in private debt as it is in other private market asset classes in Europe.

At 11.6 percent, private debt ESG has the second lowest percentage of assets under management across private market classes – the lowest being private equity, with 10.7%, according to PwC. The firm attributes private debt’s low participation in ESG to the “lender rather than owner” nature of the asset class.

Will Jackson Moore, the global private equity, real assets and sovereign funds leader for PwC in the UK, told Private Debt Investor: “I wouldn’t say private debt is taking a lead in ESG for the private asset classes front and centre right now. But in the long term, with regulatory and climate issues, there’s a big value for private debt in the future to get ahead in investing with an ESG perspective.”

Nevertheless, ESG in the asset class has grown by 15.3 percent on an annually compounded basis over the past five years. And PwC is forecasting private debt ESG assets under management to hit €78.8 billion by 2025, which would represent 21.3% of European private debt assets under management.

Private debt investors are enthusiastic about ESG as well, with almost 89% surveyed by PwC saying they plan to boost their ESG assets under management in the next two years. Nearly half of private debt investors, or 47%, also intend to cease their non-ESG fund launches, thereby showing a willingness to focus on sustainable investing.

PwC’s survey respondents included 200 general partners and 200 limited partners representing €46 trillion in assets under management.