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Asset and Wealth Management Revolution
Dear reader,
03 Introduction: The ESG imperative
In our 2020 Asset and wealth management revolution paper, The power to shape the future, we
examined how the US$127 trillion industry was in an ideal position to tackle inequality and drive
the green transition. Since then, we’ve seen an unprecedented acceleration in the move towards
environmental, social and governance–orientated (ESG-orientated) investments, especially in Europe.
As investor allocations to ESG funds increase, the industry now has an opportunity to be at the forefront
of a burgeoning ESG revolution.
06 Ten ways ESG is shaping the future
18 Adapting your business to ESG
25 Are you ESG-ready?
26 Appendix: Projected client and
product growth
27 Get in touch
In this report, we highlight the results of a recent PwC global survey of asset managers and institutional
investors. Our findings reveal an asset and wealth management (AWM) industry in transition. For asset
managers, our analysis of ten market-defining trends stresses the urgency of moving away from
ESG-orientated investments and, instead, integrating ESG principles into the heart of their purpose,
strategy and investment management processes.
We also point to the need to reconfigure operating models to secure and retain mandates, and to create
a compelling ESG story and develop credible reporting to track and communicate progress against it. To
reinforce and accelerate change, it’s also important to build ESG into digital and workforce transformation
when developing insight, strengthening leadership and delivering demonstrable value for money.
We hope this report and its actionable insights are useful to you. How quickly and effectively you make
this leap will determine not only your ability to attract investors and talent but also how effectively you
can deliver on your purpose and potential.
Sincerely,
Olwyn Alexander
Global Asset and Wealth Management Leader
Partner, PwC Ireland
3 PwC Asset and wealth management revolution 2022
Introduction:
The ESG
imperative
As ESG-orientated mandates fast become
the default—not just in Europe but also the
US—the race is on to shift allocations and
retrofit existing funds to keep pace with
investor expectations. But as vital as the
conversion efforts are, they’re only a stopgap.
As our survey underlines, long-term survival
and success depend on the ability of asset
managers to prepare for the next big shakeup
in the market by differentiating their strategy
and delivering on their purpose.
As the AWM industry and its investors emerge from the
covid-19 pandemic with renewed purpose, ESG funds
have moved from the margins and into the mainstream.
One of the most striking findings from our worldwide
survey of 250 institutional investors and 250 asset
managers, representing nearly half of global assets under
management (AuM), is the exponential rate at which this
transformation is taking place, as established markets
grow and new markets come on stream.
The US, which is the largest AWM market (US$67 trillion
in AuM at the end of 2021), had been thought to trail
behind Europe in attitudes towards ESG. But our survey
found that 81% of institutional investors in the US plan
to increase their allocations to ESG products over the
next two years, almost on par with Europe (83.6%).
Under our base-case growth projection scenario, ESG
AuM in the US would more than double, from US$4.5
trillion in 2021 to US$10.5 trillion in 2026. Spurred on by
recent landmark legislation that commits US$390 billion
to fight climate change, the overall direction of travel
among US investors is clear, even if the complexion of
administrations changes and some state governments
continue to push back on ESG.
Other global regions aren’t far behind. Asia-Pacific is
projected to have the fastest growth in ESG AuM in
percentage terms, albeit while starting from a much
lower base than Europe or the US. AuM in Asia-Pacific
will more than triple to US$3.3 trillion in 2026. ESG
investment products in the Middle East and Africa
are also gaining market share from their base in wellestablished Shariah-compliant funds, though such
growth in these regions is much smaller in absolute
4 PwC Asset and wealth management revolution 2022
terms. And in Latin America, where ESG products now
account for US$25 billion in AuM, investor interest is also
growing.
Simply put, ESG-orientated AuM is set to grow much
faster than the AWM market as a whole. In our basecase scenario, the share of ESG assets over total AuM
would increase from 14.4% in 2021 to 21.5% in 2026,
comprising more than one-fifth of all assets (see ‘Growth
in ESG investments will outpace the industry as a
whole’). Although the current growth is derived largely
from retrofitted funds—at the end of 2021, 27% of
funds in Europe had been repurposed to integrate ESG
factors—we believe that new funds will be set up, raising
new capital.
Growth in ESG investments will outpace the industry as a whole
Global ESG AuM (US$tn)
Global ESG AuM by region (US$tn)
2015
2020
2021
2026
Low
2026
Base
2026
Best
2015
2020
2021
2026
Low
2026
Base
2026
Best
Asia-Pacific
0.2
0.7
1.0
2.1
3.3
5.0
Europe
4.8
10.4
12.8
16.9
22.4
4.7
12.8
14.3
19.6
25.7
Mandates
0.0
1.1
Latin America
1.6
3.6
6.9
10.1
14.3
20.7
0.0
0.0
0.0
0.1
0.2
0.3
Mutual funds
1.0
1.1
1.6
2.7
4.5
0.1
0.1
0.2
0.3
0.4
Private markets
0.6
Middle East & Africa 0.0
2.2
9.4
18.4
24.4
33.9
47.6
7.7
10.5
16.3
Total
0.8
North America
2.2
Total
3.8
9.4
Forecast
Key
60
% of ESG
50
CAGR
30
20
42.7%
21.5%
12.9%
17.3%
5.8%
24.4
33.9
47.6
Forecast
28.7%
20.9%
40
4.5
18.4
Key
60
% of ESG
50
CAGR
28.7%
20.9%
40
30
20
10
10
0
0
Source: PwC Global ESG and AWM Market Research Centre analysis, Lipper, Preqin, ESG Global
42.7%
21.5%
12.9%
17.3%
5.8%
5 PwC Asset and wealth management revolution 2022
Opportunities ahead
Given that ESG is growing rapidly—and is projected to
continue to do so—we believe that the market will open
up over the next three to five years and present frontrunners with significant opportunities and challenges.
impacts (PAIs) related to ESG factors such as carbon
footprint, greenhouse gas emissions, anti-corruption
measures and modern slavery. Firms are now expected
to mitigate and address the PAIs and the issues
underlying them.
The upside of setting up a new ESG fund is the
opportunity to drive growth and meet investor demands
as they evolve and become more targeted. A majority of
investors (60%) report that ESG has already resulted in
higher yields in their investment performance, compared
with non-ESG equivalents. And more than three-quarters
of investors would be willing to pay higher fees for ESG
funds. However, there has been little sign that higher
fees are being applied to retrofitted funds so far, despite
higher compliance costs for asset managers.
Data challenges for both new and converted ESG funds
are well-known. These challenges are compounded
by a continuing lack of clarity or consensus over what
regulators and investors deem to be green and socially
inclusive. The rising bar for ESG expectations, though
less well-charted, is just as big a challenge. In the EU,
for example, to comply with regulations, it’s no longer
enough to disclose and explain principal adverse
The EU is more prescriptive on ESG than the principlesbased approach taken by the US Securities and
Exchange Commission. But on both sides of the Atlantic,
the shift to a more tightly regulated ESG marketplace is
decreasing the range of securities that are sufficiently
ESG-friendly to choose from. However, we expect the
investible universe to start expanding again as more and
more businesses across different sectors embrace ESG
in their strategy and operations.
The other big issue is timing. In particular, the impact
of the war in Ukraine on energy supply, security and
prices has raised questions among some investors,
asset managers and portfolio companies over whether
their green transition may need to be altered in the
short term—although the longer-term intentions for ESG
allocations are clear from our survey.
The catalyst will be the broadening of ESG classification
as investors and regulators focus more closely on
supporting businesses that are undergoing green
transitions. ESG-designated funds will no longer be
restricted to a narrow taxonomy of fully sustainable
and inclusive assets but could also invest in a much
wider array of businesses to help reshape production
techniques and to develop clean and green models. In
turn, more businesses will be moving along this ESG
path.
These market developments offer a sweet spot for
the AWM industry. Asset managers have a once-in-ageneration opportunity to drive innovation and win new
mandates through the compelling appeal of their ESG
story and ability to deliver on their promise.
As the following ten trends show, ESG represents an
area of growth for the industry. At the same time, it
introduces new challenges to the traditional ways of
doing business. There is also a significant gulf between
what investors want and what asset managers are
doing in response. Those who get the transition right by
rethinking their strategy will create a virtuous circle of
purpose and opportunity, yielding sustainable growth.
6 PwC Asset and wealth management revolution 2022
Ten ways
ESG is shaping
the future
Our survey highlights a surge in demand
for ESG funds that exceeds almost all previous
expectations. Here we list the ten key market
trends, industry priorities and stakeholder
expectations that are helping to shape the
ESG agenda in the AWM market.
7 PwC Asset and wealth management revolution 2022
1
ESG is replacing asset
price increases as an engine
of growth
Strong AWM market growth over the past ten years
has been driven by rises in both asset prices and flows.
Now, ESG is poised to become a key market driver, as
gathering economic headwinds threaten the traditional
growth engines in the industry. These changes underline
the importance for asset managers and institutional
investors alike to understand how to capture the shift
to ESG as a counterbalance to potential portfolio
underperformance.
ESG-orientated funds are set to grow much faster than
the market as a whole (at a base-case CAGR of 12.9%),
and, as headwinds persist, are rapidly becoming one of
the go-to assets for differentiation. With ESG AuM under
this scenario set to reach US$33.9 trillion by 2026, the
ESG share of overall AuM would increase from 14.4%
in 2021 to more than one-fifth of all assets (21.5%) by
2026. Even in the low-case scenario, the CAGR would
be 5.8%—much higher than the growth estimates for the
wider industry over the same time frame.
Our base-case estimates for total global AuM reflect
the covid-related spike in inflation that has pushed
central banks across the globe to tighten monetary
policy. The scenario allows for a capital market
contraction of 20 to 30% between 2022 and 2023,
followed by a recovery from 2024 onwards. Under
this scenario, the 8.9% compound annual growth rate
(CAGR) in AuM achieved between 2016 and 2021 would
slip to 4.3% between now and 2026.
However, our low-case estimate shows a significantly
slower growth in overall AuM, slightly above 2% CAGR
until 2026 and reaching US$141.1 trillion, driven by
further hikes in interest rates to mid-2023. Under this
scenario, these enduring high inflationary pressures
would continue in the coming months and years as the
war in Ukraine and supply chain bottlenecks persist,
leading to heightened protectionism and a fractured
global landscape. This would result in stagflation and a
more pronounced asset price correction, leading, in turn,
to a further downturn of revenues, profits and overall
AuM within AWM.
For further market analysis, refer to the appendix on page
26: ‘Projected client and product growth.’
8 PwC Asset and wealth management revolution 2022
Growth models for an industry in transition
Investments in North America and Europe could double between
2015 and 2026
Global AuM (US$tn)
Global AuM by region (US$tn)
2015
2020
2021
2026
Low
2026
Base
2026
Best
Mandates
34.8
47.1
50.1
56.8
59.8
62.9
Mutual funds
31.7
53.6
60.9
65.2
76.2
80.6
Asia-Pacific
10.6
20.0
22.0
26.7
29.8
31.3
20.5
32.1
34.8
37.2
40.8
43.2
2.5
2.6
2.7
3.3
3.7
3.9
2015
Alternatives
9.8
15.1
16.4
19.1
21.2
22.3
Europe
Total
76.3
115.8
127.5
141.1
157.2
165.9
Latin America
Forecast
Key
% of ESG
200
21.5%
CAGR
150
8.1%
100
17.3%
8.9%
14.4%
2.1%
4.3%
28.7%
5.4%
2.9%
2020
0
2026
Low
2026
Base
2026
Best
Middle East & Africa
0.6
0.9
1.0
1.2
1.3
1.4
North America
42.1
60.3
67.0
72.7
81.5
86.1
Total
76.3
115.8
127.5
141.1
157.2
165.9
Forecast
Key
% of ESG
200
21.5%
CAGR
150
100
17.3%
8.9%
8.1%
50
2021
14.4%
2.1%
4.3%
28.7%
5.4%
2.9%
50
Source: PwC Global ESG and AWM Market Research Centre analysis, Lipper, Preqin, ESG Global
0
Source: PwC Global ESG and AWM Market Research Centre analysis, Lipper, Preqin, ESG Global
9 PwC Asset and wealth management revolution 2022
2
Pursuing ESG is fundamental
ESG is a dealbreaker for many investors
ESG is far more than just a compliance exercise. Our
survey highlights the emergence of a new breed of
institutional investor. Nearly eight in ten institutional
investors (79%) plan to increase their allocations to
ESG products over the next two years. What’s more,
nearly nine in ten have either already rejected or stopped
investing with a specific asset manager (39%) or would
consider doing so (50%) due to shortcomings in the
manager’s ESG investment strategies. And it isn’t just
investors who are driving change. PwC research into
ESG sentiment highlights the extent to which both
consumers and employees expect organisations to share
their own values.
The immediate priority for the asset managers in our
survey (76%), therefore, is to convert existing products
so that they can be labelled as ESG-orientated. The
adjustments could focus either on complying with
Sustainable Finance Disclosure Regulation (SFDR)
Articles 8 and 9 in the EU or on de facto alignment
with stakeholder expectations elsewhere. Given
the proportion of investors who are increasing their
allocations to ESG funds, retrofitting is the minimum that
asset managers need to do to stay in the game.
Q: Have you as an institutional investor rejected or stopped investing with an
asset manager due to shortcomings in their corporate ESG efforts or ESG
investment strategies?
Corporate ESG efforts
ESG investment strategies
44%
39%
Yes
Though conversion costs less than launching a new
ESG fund, it still brings many of the same challenges.
Data gaps are easing, but they continue to be
prevalent enough to force many managers to rely on
estimates and even guesstimates. At the very least,
these approximations and their impact need to be fully
disclosed and explained. The challenges are heightened
by grey areas in taxonomies of what is and isn’t
sustainable and inclusive. In the EU, the regulatory bar
for green designation has been raised still further by the
move to a duty of care on addressing adverse impact.
42%
No, but
would
consider
doing so
and wouldn’t
14% No,
consider doing so
Yes
50%
No, but
would
consider
doing so
and wouldn’t
11% No,
consider doing so
Source: PwC Global ESG and AWM Market Research Centre analysis,
ESG Global
10 PwC Asset and wealth management revolution 2022
3
The investible universe for
ESG funds will open up
More than seven in ten institutional investors (72%)
assess their asset managers’ ESG investment strategies
before deciding where to allocate funds. Right now,
however, the number of securities that could be classed
as unquestionably sustainable, and hence included
with an ESG-orientated fund, is limited. If we look at the
SFDR criteria, the range of investments and activities
that would qualify for Article 9 status, in which the
objective of the financial product is geared primarily to
an E, S or G impact, is especially few and far between.
This makes it hard for asset managers to set their funds
apart from competitors’.
But the investible universe and opportunities for
differentiation will increase. New legislation, public
market activity and government investment in longerterm sustainability goals are gaining momentum just as
more businesses in different sectors embrace their own
transition to ESG. This trend towards a more investible
ESG landscape includes investing in companies that
aren’t sustainable now, and then helping them with the
finance and expertise needed to incorporate positive
ESG outcomes into their operations. Asset managers
have the opportunity to take an actively interventionist
approach. This next phase of evolution in ESG is evident
in the work of the EU’s Technical Expert Group on
sustainable finance, which could set the direction for
developments elsewhere.
Investors are reporting higher yields on
ESG products
11 PwC Asset and wealth management revolution 2022
Q: In your experience, what impact has ESG integration had on your
investment performance?
(ESG investments have yielded _____ returns in comparison to their
non-ESG equivalents.)
4
ESG has broadened objectives
and fiduciary duties
Market observers have pointed to the potential tensions
between ESG investment priorities and asset managers’
fiduciary duty to maximise financial returns for investors.
Previous PwC research has shown that some asset
managers aren’t prepared to compromise financial
returns for ESG credentials. In that prior PwC study,
more than 80% of self-described active asset managers
were either unwilling to accept a reduction in returns
or would agree only to a drop of 100 basis points (bps)
or less.
12.4%
Slightly
higher
47.6%
Similar
25.6%
Slightly
lower
12.0%
Net positive
60%
But the tide is clearly turning. Three-quarters of
institutional investors in our survey believe that ESG is
now part of their fiduciary duty. Nearly as many (72%) set
ESG-related goals for their asset managers at a portfolio
level, though whether this overrides financial return
would vary. The winners will be marked out by their
ability to deliver on both fronts.
As to whether financial and ESG performance might
conflict, nine in ten asset managers are convinced that
integrating ESG into their investment strategy will improve
overall returns in the long term. Six in ten institutional
investors are already recording higher yields on their
ESG investments compared with non-ESG investments
(see ‘Investors are reporting higher yields on ESG
investments’). More than half noted that ESG integration
had taken less than three years to deliver higher returns.
Significantly
higher
Net negative
14.4%
2.4%
Significantly
lower
Source: PwC Market Research Centre analysis, Lipper, Preqin
12 PwC Asset and wealth management revolution 2022
5
Innovation lags enthusiasm in the creation of ESG-compliant funds
Q: Looking into the future, your firm will predominantly….
Investors are pushing for new
ESG products—but demand
outstrips supply
…retrofit or adjust products to become ESG-compliant.
…launch a new suite of ESG products.
Percent of respondents
76%
79%
75%
79%
68%
Nearly nine in ten institutional investors (88%) believe
that asset managers should be more proactive in
developing new ESG products. However, fewer than
half of managers (45%) are planning to launch new
ESG funds. If we look at the EU, for instance, our
analysis shows that of the 8,017 funds classified as
‘environmentally and socially promoting’ (Article 8) by
the end of Q2 2022, only 989 were new and the rest
were reclassified. Of the 1,061 classified as ‘products
targeting sustainable investments’ (Article 9), only 286
were new and the rest reclassified.
This expectation gap opens up opportunities. By
accelerating new product development and actively
supporting green transition, early movers would sharpen
innovation, boost relevance and seize market share.
64%
57%
45%
39%
33%
World
Europe
North America
Source: PwC Global ESG and AWM Market Research Centre
Asia-Pacific
Other regions
13 PwC Asset and wealth management revolution 2022
6
To attract new investment,
managers will need to
differentiate their products
and demonstrate ESG
performance
More than three-quarters of investors are willing to pay
higher fees (78%) for ESG funds—57% would accept
20 to 40 bps, equal to a 0.2 to 0.4% increase in fees.
Nearly eight in ten asset managers (79%) would consider
charging higher fees for their ESG offerings (an average
of 35 bps higher). But even if asset managers do seek
to charge higher fees to cover some of their additional
costs, the question is how sustainable such a premium
would be in the long term. This uncertainty underlines
the need to focus on product differentiation and value
for money.
Our survey results revealed a potential appetite
to build ESG into performance-related fees. More
than half (52%) of investors would be willing to link
compensation to ESG performance. Two-thirds of
these would accept a 3 to 5% ESG premium. But
far fewer are prepared to pay the 5%-plus fees
envisaged by some asset managers. In turn, more
than half of asset managers (57%) are looking into
the possibility of charging performance fees. Most
managers (60%) believe an ESG performance
consideration of 3 to 5% would be acceptable.
Notably, however, we’ve not yet observed any ESG
performance fees being charged. Moreover, any
performance fees would require the development
of clear and credible impact measurement to justify
them. This is possible, though it may increase data
collection and reporting costs and hence eat into any
additional revenues.
Investors show a willingness to accept ESG
performance fees
52.0%
56.8%
Institutional investors willing to accept an ESG performance fee
Asset managers considering charging an ESG performance fee
How much are they willing to pay/charge?
<3%
3–5%
5–10%
10–20%
>20%
67%
60%
25%
24%
15%
8%
0%
1%
0%
1%
Source: PwC Global ESG and AWM Market Research Centre, ESG Global
14 PwC Asset and wealth management revolution 2022
ESG regulation and standards are gaining momentum globally
North America
Debates regarding the SEC’s
shift from materiality-based
to more prescriptive ESG
disclosure approaches
are underway. The Biden
Administration’s strong ESG
agenda is evident in the
largest climate spending
package in US history.
Latin America
Chilean and Mexican authorities have recently
enforced regulations regarding ESG risk
disclosure and reporting for pension funds.
Although those represent an important regulatory
step, further progress is needed to promote a
deeper entrenchment of ESG considerations in
the broader AWM space.
Source: PwC Global AWM Research Centre
Europe
Recent years have seen the fundamental transformation of
Europe’s regulatory structure through the implementation of
a number of binding ESG-related regulations. This regulatory
and legislative momentum has been highly conducive to the
region’s ESG market growth and promises to bring in a new
era of investment.
Asia-Pacific
Hong Kong and Singapore lead the AsiaPacific region, with financial regulatory authorities
steering the industry towards stronger ESG risk
and reporting practices. Proposals involving
the development of an ASEAN taxonomy
should bring important progress should they
materialise. In Oceania, New Zealand has
emerged as a first mover, being the first country to
mandate climate-related disclosures.
Worldwide
Important movements towards the development of
international ESG sustainability reporting standards
are currently in place, with the International
Financial Reporting Standards’ Sustainability
Standards Board being one of the most ambitious
current initiatives.
7
Investors say they want more
regulation
Both asset managers and institutional investors see
regulation as the main obstacle to ESG growth.
Concerns over regulation aren’t surprising. It can be
costly, complex and inconsistent. The demands can
also draw resources away from much-needed strategic
planning and product development.
Nonetheless, institutional investors believe that
regulation is an important driver for integrating ESG
into asset managers’ investment strategies. Precise
and transparent regulation can act as an important
lever to build trust and decrease the risk of mislabelling.
They also believe regulatory standards provide a useful
basis for due diligence on asset managers’ investment
strategies. More than seven in ten (71%) are therefore in
favour of strengthening ESG regulatory requirements for
asset managers.
15 PwC Asset and wealth management revolution 2022
8
A meaningful ESG strategy
requires investment
An ESG strategy requires a significant shift in governance
and corporate practices. It also increases the need for
employees with ESG and reporting expertise. It could
thus raise near-term costs for asset managers. Our
survey finds that regulatory and compliance costs have
increased by more than 10%. This development favours
large asset managers with the scale and resources to
absorb these extra demands and spread the costs.
For others, it creates a barrier to entry or puts further
pressure on an already squeezed middle.
Compliance costs are growing
Increase in regulatory compliance costs due to ESG
Europe
12.8%
North
America
Asia-Pacific
12.1%
10.2%
World
11.1%
Other regions
10.3%
Source: PwC Global ESG and AWM Market Research Centre, ESG Global
16 PwC Asset and wealth management revolution 2022
9
E, S and G must be balanced as
part of a just transition
There is still opposition to ESG among some policy-makers and regulators, who
believe that asset managers should not broaden their objectives beyond financial
return. Curbs on ESG-focused investment can already be seen in some jurisdictions,
such as the US states of Texas and Florida. However, any change in policy would need
to be weighed against the pro-ESG attitudes among investors that we have noted in
our survey.
Even some stakeholders who recognise the importance of action on climate change are
worried about the impact of an accelerated green transition on energy security and the
jobs that depend on it. These concerns have been heightened by the spike in energy
prices in the wake of the war in Ukraine and the resulting impact on business costs
and consumer prices. As a result, some investors, asset managers, portfolio companies
and policy-makers have begun to draw distinctions between their short-term and
long-term strategies for ESG. The shift in sentiment is reflected in the inclusion of nuclear
power and natural gas in the EU Taxonomy and the increased allocation of oil and gas
companies within a number of asset managers’ portfolios while, at the same time,
these asset managers also work with energy providers to build efforts around a
longer-term transition.
17 PwC Asset and wealth management revolution 2022
10
Managers need a proactive
risk-mitigation strategy for
mislabelled products
More than seven in ten institutional investors (71%) and
more than eight in ten asset managers (86%) believe that
mislabelling is prevalent in the AWM industry. The risks
are heightened by the pace at which new regulations
are coming on stream and uncertainty over the ESG
designations within them.
One example of this uncertainty is the continuing
debates over which investments are included in the EU
Taxonomy. Mislabelling is rarely intentional, however.
More often than not it stems from the lack of clarity
in regulatory classifications, insufficient consistency
in data standards and poor information coming from
portfolio companies. It can also be rooted in silos and
inconsistencies within the organisation—marketing or
reporting teams not communicating closely enough
with fund managers, for example. If slip-ups do occur,
it’s important to be able to quickly explain why, and to
correct and learn from the mistakes. Delays or lack of
transparency can only heighten the reputational damage
and risk of regulatory sanction.
18 PwC Asset and wealth management revolution 2022
Adapting your
business to ESG
As the preceding trends show, investor
expectations of ESG commitments have
set the scene for a radical overhaul in how
value is defined and delivered in the AWM
industry, from mandate selection to how
fund performance is judged.
The focus on actively supporting green transition will add
further impetus to this shakeup, creating opportunities
for new and creative strategies but also increasing
competition to attract and sustain mandates.
How can your organisation get up to speed? Drawing on
the survey findings and our wide-ranging work with AWM
organisations, we’ve identified four actions—stepping
up strategic integration, reconfiguring your operating
model, storytelling and focusing on governance—that
are becoming increasingly urgent.
1. Step up strategic integration
The faster and more effectively you can build ESG into
the heart of your strategy and capabilities, the better
your ability to meet investor expectations and attract
new mandates.
Some asset managers will be ESG opportunists,
responding to changing stakeholder expectations and
looking for quick wins. But there are opportunities
to adopt a more strategic approach by anticipating
stakeholder demands, developing a new generation of
ESG funds, and moving to the forefront of social and
environmental change. Examples include supporting
investment in green transition and infrastructure with the
development of leading-edge expertise in these areas.
19 PwC Asset and wealth management revolution 2022
The speed at which stakeholder expectations are
changing means that ESG strategies can often be
piecemeal and reactive—modifying specific products to
meet regulatory designations, for example. Taking the
initiative and realising the full potential of ESG demands
a clear vision of what your business stands for, a plan
for change, and a durable framework for governance,
accountability and reporting to make sure that what is
being promised is delivered.
Practical steps
In setting near-term objectives, it’s important to talk to
employees, investors and other key stakeholders to find
out what they want from your strategy and reporting.
In developing the plan, materiality analysis can help to
identify the issues and opportunities that are most likely
to have an impact on you, your investors and other key
stakeholders. Consider the client journey with ESG as
a starting point—awareness, engagement, servicing,
and upselling or cross-selling—to build up credibility
and service offerings. Homing in on what matters
most would also allow you to align your ESG goals
with your corporate strategy, stakeholder expectations
and organisational strengths in the most targeted and
realisable way.
Your CEO and leadership team should own the shift in
strategy and set the tone for the change in behaviour and
alignment between ESG and wider objectives. Without
this high-level direction and intent, business units may
just carry on as before or see ESG as a compliance
exercise with little relevance to their day-to-day activities
and decisions.
20 PwC Asset and wealth management revolution 2022
To secure organisational buy-in and build momentum,
the initial focus should be the most effective and easyto-implement actions. Areas where the impact is high
but implementation is relatively straightforward include
the establishment of an ESG investment committee (see
‘Expectation gap: Exerting influence’).
As the current issues surrounding energy supply and
security attest, there will be shifts in sentiment and shortterm priorities. Expectations will also keep evolving, so
ESG integration isn’t going to be a one-off exercise. The
integration frameworks developed by the UN Principles
for Responsible Investment and the CFA Institute can
provide a reference point for integration and help you to
compare your business against those of your peers.
Expectation gap: Exerting influence
All the asset managers in our survey incorporate ESG into their investment approach to at least some
extent. However, fewer than half (46%) have an ESG investment committee, and not all of these have veto
rights over investments.
Clearly, an ESG committee is not the only way to strengthen ESG influence and governance. ESG
could be included in the investment committee agenda or built into portfolio management services
as a red flag, for example. But an ESG committee offers one of the most effective ways to make sure
that ESG is considered at a portfolio level and is therefore a reasonable yardstick for the level of focus
and action ahead.
21 PwC Asset and wealth management revolution 2022
2. Reconfigure your
operating model
ESG touches on virtually every aspect of your operating
model. Key priorities include setting investment selection
and performance criteria that are consistent with your
ESG agenda. You would then need to identify, source
and analyse the data that would be required to meet
these criteria, while also delivering value for money.
Though the availability and deployment of ESG data
is on the rise, the data still lacks sufficient breadth
and consistency. This can hamper investment
decisions and make it difficult to compare sectors and
securities. It also makes it harder to demonstrate ESG
performance and to align products and services with
the expectations of investors and regulators. These
data deficiencies are the most serious constraint to the
greater adoption of ESG in the AWM industry, and they
are likely to intensify as upcoming regulations call for
new datasets and processes.
As a result, asset managers must address the
shortcomings in their data management processes.
This would not only help them to deal with regulatory
requirements, but also to capitalise on the opportunities
opened up by the surge in client demand for
sustainable investing.
Practical steps
Adoption of the latest technology holds the key to
overcoming the ESG data and reporting challenges. If
properly implemented and integrated, new technologies
could soon redefine the industry, helping you as an asset
manager to fully incorporate ESG considerations into
your investment process and enabling you to develop a
highly differentiated, sustainable value-creation offering.
There are also opportunities to digitise the data coming
from portfolio companies to help you assess their ESGrelated risks and advise on ways to address them.
22 PwC Asset and wealth management revolution 2022
Clearly, this will require investment. The scale and
cost of reporting is likely to spur an acceleration in the
outsourcing of reporting. Compliance would in turn be
increasingly delivered as a managed service.
Are disclosures sufficiently
trusted and transparent?
More than one-third of investors (38%) believe
that the lack of data from asset managers
represents a challenge when investing in or
considering ESG products. Nearly two-thirds
of asset managers (64%) believe that data
challenges are one of the main obstacles when
adopting or considering ESG investments.
The ESG criteria that you set for the businesses in your
portfolio should be consistent with how you manage
your business internally. Reducing the carbon footprint of
your operations in areas such as switching to renewable
energy is reasonably straightforward. The harder, but
equally critical, challenge is making demonstrable
progress on diversity and inclusion. If they are business
imperatives, they should be treated as such, from
building them into business strategy to full and candid
disclosure.
23 PwC Asset and wealth management revolution 2022
3. Develop and convey a
compelling story
Determining what you stand for and how to deliver on
your commitments can form the basis for a clear and
compelling ESG story. This is about building trust at a
time when it’s more fragile and harder to earn than ever.
Practical steps
The starting point is a realistic set of goals. For example,
saying you intend to be net zero in five years’ time
may sound compelling, but may be difficult to deliver
in practice. It may be better to focus on what you’re
actually doing on the ground within your portfolio and
your operations, and how it’s making a demonstrable
difference.
The other key priority is the quality and reliability of
information to support decision-making and credible
reporting. It’s important to recognise that what is
considered sustainable today may change over
time. This evolving landscape underlines the need to
document the reasoning behind decisions to ensure
that the rationale can stand up to scrutiny further down
the line.
Good information is the key foundation for performance
against objectives and value for money. With most key
performance indicators (KPIs) focused on sustainability,
priorities include broadening measurement and reporting
in areas such as social impact and diversity and
inclusion.
Reporting matters
Investor expectations for asset manager disclosure
Levels at which investors require
reporting from asset managers
Dimensions investors currently require in ESG reporting
(Excluding regulatory requirements)
I currently require…
Portfolio level
Manager level
Underlying portfolio company level
0.8%
76.0%
17.2%
6%
Governance KPIs
57.6%
Do not require
I do not require…
Environmental KPIs
68.0%
24.8%
I plan on requiring…
59.2%
24.0%
14.4%
Social KPIs
46.8%
11.2%
41.2%
Information on exposure to climate risks
42.8%
30.4%
20
Source: PwC Global ESG and AWM Market Research Centre
Reporting should be consistent and joined up. This will
require close collaboration and systems integration
between investment evaluation, regulatory reporting and
investor relations teams. It helps to question practices: is
the messaging consistent? Does the data support it?
It will take time to get measurement up to speed.
The current inefficiencies in quantitative data also
reinforce the importance of setting out a clear vision and
reporting on progress against it in enriched qualitative
disclosures. Fuller explanation doesn’t just help to
40
23.6%
60
80
100
Note: Sums may not total 100 due to rounding.
bridge any gaps in the numbers; it also helps to justify
strategies that have positive objectives but that
could come across negatively in the reported data.
A clear case in point is explaining why financing is still
going to companies with high emissions now and how
you are helping those companies to move onto
a sustainable footing.
24 PwC Asset and wealth management revolution 2022
4. Focus on the G, as well as the
E and the S
Governance—the G in ESG—doesn’t always get as
much public attention as the E or the S, but it’s just as
critical and growing in focus.
Effective governance can help to align corporate
commitments on ESG with frontline business decisions
and operations. Amid the backlash against greenwashing
and social washing, governance is also a key foundation
for credible disclosure.
ESG breakdown
The changing balance between environmental, social and governance priorities
Current and future most prevalent E
SG aspects
in institutional investors’investments (%)
44%
Additional priorities include developing a clear
understanding of new and emerging risks. Boards should
take the lead in setting the risk appetite and putting in
place the necessary lines of reporting and accountability.
At a portfolio level, it’s important to make sure that
material risk exposures for specific investments are
identified, assessed and tracked. More than half (56%)
of institutional investors and 76% of asset managers are
in favour of strengthening ESG disclosure rules for listed
companies.
42%
42%
27%
21%
Practical steps
If the foundation is building ESG into strategy, the key
priorities from a governance perspective are clear lines
of accountability and the management information to
deliver timely and effective oversight. It’s also important
to build ESG into performance objectives and rewards
alongside financial measures.
Future most prevalent ESG aspects in a
sset
managers’ launching of new products (%)
23%
22%
17%
18%
18%
17%
Social
Governance
9%
Environmental
Social
Governance
All
equally
weighted
As of today
Next 24 months
Source: PwC Global ESG and AWM Market Research Centre
Environmental
All
equally
weighted
25 PwC Asset and wealth management revolution 2022
Ten strategic considerations
Are you
ESG-ready?
1
2
3
4
5
6
7
How quickly can you shift allocations and convert existing ESG products to stay in the game in
the short term?
How quickly can you shift from retrofitting to strategic reorientation and the launch of new
ESG products to meet growing demand from investors?
How can you best develop and articulate your ESG story to make sure investors understand and
align with your ambitions?
How can you sufficiently differentiate ESG products and performance to sustain investment and
justify higher fees in the long term?
How quickly and effectively you embrace, embed and
operationalise ESG will determine not only your ability to
attract investment and employees but also how well you
can deliver on your purpose and potential. To help, we’ve
developed ten key considerations to jump-start your
thinking and set your business up to thrive in today’s
ESG-orientated marketplace.
How can you improve efficiency and cut operating expenses to help capture growing ESG
demand, offset increased costs and sustain margins?
How can you sustain credibility by making sure your own ESG policies, operations and
performance match what you expect from portfolio companies?
How can you boost credibility and sharpen market differentiation by developing a strong data
and reporting strategy, evaluating your own data collection and analysis, or enlisting a third-party
provider?
8
9
10
What system upgrades do you need to source and analyse ESG data effectively?
How can you establish the assurance of the ESG data and analysis to guard against the risk
of ESG mislabelling?
How can you respond quickly and decisively to possible claims of mislabelling or greenwashing
by explaining how the mistakes were made, fully correcting them and learning from them?
We would love the opportunity to discuss our findings with you in more detail as you work to
integrate ESG into your business.
26 PwC Asset and wealth management revolution 2022
Appendix: Projected client and product growth
The growth of alternative and passive investments is expected to accelerate
(Values are expressed in US$ trillion.)
Products
2012
2015
2020
2021
2026 low
estimate
2026 base
estimate
2026 best
estimate
CAGR low
estimate
CAGR base
estimate
CAGR best
estimate
Global AuM
63.8
76.3
115.8
127.5
141.1
157.2
165.9
2.1%
4.3%
5.4%
Mutual funds
26.9
31.7
53.6
60.9
65.2
76.2
80.6
1.3%
4.6%
5.7%
of which active investments
23.6
25.9
39.4
43.3
43.3
50.6
53.6
0.0%
3.2%
4.3%
3.4
5.8
14.2
17.6
21.8
25.5
27.0
4.4%
7.7%
8.9%
Mandates
30.4
34.8
47.1
50.1
56.8
59.8
62.9
2.5%
3.6%
4.7%
of which active investments
26.5
28.4
34.7
34.8
36.5
38.5
40.5
1.0%
2.0%
3.1%
of which passive investments
3.9
6.4
12.4
15.4
20.3
21.4
22.5
5.7%
6.8%
7.9%
Alternatives
6.4
9.8
15.1
16.4
19.1
21.2
22.3
3.1%
5.3%
6.4%
of which passive investments
Note: Totals may not equal sums due to rounding.
Source: PwC Global ESG and AWM Market Research Centre, Lipper, Preqin
Among client assets, pensions and sovereign wealth funds are expected to see the strongest growth
(Values are expressed in US$ trillion.)
Clients
2012
2015
2017
2019
2020
2026 base
estimate
2020–26
CAGR
estimate
Pension assets
35.2
39.8
47.2
51.6
56.2
76.5
5.3%
Insurance companies
24.1
27.1
30.5
31.1
33.2
43.3
4.5%
5.2
7.4
7.8
8.7
9.9
13.3
5.1%
High net-worth individuals
46.5
62.8
70.2
84.6
104.1
128.6
3.6%
Mass affluent
49.7
54.1
60.0
74.8
88.5
107.0
3.2%
160.8
191.2
215.7
250.8
291.8
368.7
4.0%
4.3%
Sovereign wealth funds
Total client assets
Total AuM
Penetration rate
63.9
78.7
97.6
106.8
115.3
157.2
39.7%
41.2%
45.3%
42.6%
39.5%
42.6%
Note: Totals may not equal sums due to rounding.
Source: PwC Global ESG and AWM Market Research Centre, OECD, Lipper, Pension Fund and Insurance Associations
27 PwC Asset and wealth management revolution 2022
Get in touch
About the survey
Olwyn Alexander
Global Asset and Wealth Management Leader
Partner, PwC Ireland
olwyn.m.alexander@pwc.com
Justin Ong
Asia-Pacific Asset and Wealth Management Leader
Partner, PwC Singapore
justin.ong@pwc.com
Albertha Charles
UK Asset and Wealth Management Leader
Partner, PwC UK
albertha.charles@pwc.com
Seth Promisel
US Asset and Wealth Management
Partner, PwC US
seth.promisel@pwc.com
Roland Kastoun
US Asset and Wealth Management Consulting
Solutions Leader
Principal, PwC US
roland.kastoun@pwc.com
Allison Rosier
Global Asset and Wealth Management Tax Leader
Principal, PwC US
allison.rosier@pwc.com
Steven Libby
EMEA Asset and Wealth Management Leader
Partner, PwC Luxembourg
steven.libby@pwc.com
Robert Mellor
Partner, PwC UK
robert.mellor@pwc.com
Andy O’Callaghan
Global Asset and Wealth Management Advisory Leader
Partner, PwC Ireland
andy.ocallaghan@pwc.com
Kevin O’Connell
Global Asset and Wealth Management ESG Leader
Partner, PwC US
kevin.w.oconnell@pwc.com
Elizabeth Stone
EMEA Asset and Wealth Management ESG Leader
Partner, PwC UK
elizabeth.j.stone@pwc.com
Joe Wiggins
Global Asset and Wealth Management
Alternatives Leader
Partner, PwC US
joe.wiggins@pwc.com
Dariush Yazdani
Asset and Wealth Management
Global Market Research Centre Leader
Partner, PwC Luxembourg
dariush.yazdani@pwc.com
PwC’s Asset and Wealth Management Survey is
an international survey of asset managers and
institutional investors. The goal of the survey is to
better understand how the current AWM industry
views changes related to ESG and the direction in
which those changes are likely to take the industry in
the coming years.
The asset manager survey sample included 250
respondents, accounting for total global AuM of
approximately US$50 trillion. The respondent base
was largely cross-sectional in terms of size and
tranche.
The institutional investors survey consisted of
250 respondents, with combined global assets
of US$60 trillion. Respondents covered a broad
spectrum of AuM size, with more than half boasting
assets of more than US$10 billion. Public pension
funds and private pension funds together accounted
for more than half of the institutional investor
respondent base.
