A new report by the European Fund and Asset Management Association (EFAMA) has analysed the ESG investment market across Europe and found that as much as 45% of total assets under management in Europe at the end of 2019 were invested in an some sort of ESG selection strategy.
According to the paper, published in collaboration with EFAMA's member associations and strategy consultants at INDEFI, a total of €10.7trn worth of assets take some sort of ESG consideration into account, with strategies broadly divided into two types: exclusion, or systematic integration of ESG risks and opportunities.
Tanguy van de Werve, director general of EFAMA, said: "The research confirms that a wide variety of sustainable investment approaches are followed, demonstrating the need to exercise caution when quantifying the true size of the European ESG market.
"EFAMA and its members are committed to supporting the efforts undertaken to clarify which investments can be deemed sustainable, while ensuring enough flexibility to support the industry's contribution to the financing of the green transition through collaboration and innovation."
Richard Bruyère, managing partner at INDEFI, added: "Echoing our findings on the institutional market, this analysis confirms that Europe has turned a corner in terms of sustainable investment.
"The breadth of practices and level of innovation witnessed in our industry demonstrates that asset managers are embracing a new competitive landscape in which sustainability will no longer be an option one can do without."
EFAMA found that while exclusion remains common, with nearly a third of assets covered in the report applying this strategy, the most popular approach to ESG among European asset managers is integration, with over 37% of total AUM invested using this approach.
At the same time, investment stewardship and engagement are also a key part of investment for European asset managers, with some €10.2trn worth of assets subject to "ongoing ESG-related engagement and voting policies", representing 43% of total AUM.
At a product level, ESG integration was also the most common strategy, with around 16% (€3.8bn) of total fund and mandate assets managed this way, but exclusionary approaches are also common, with €2.9trn worth of assets applying product-specific exclusions.
Sustainability-themed products, which explicitly target specific themes of sustainable development in their investment strategy, were a slightly smaller segment of the overall European market at €2trn, though these funds still account for 11% of total fund assets.
Unsurprisingly, impact funds were the smallest segment, representing just under 1% of investment fund AUM covered by this survey. However, the €150bn invested in these types of products is still a significant amount for a nascent area of the industry.
EFAMA said: "Despite impact investing remaining a nascent field, it is attracting growing interest among both institutional and private clients.
"Further growth can be expected in this market, particularly as new regulatory measures (EU Taxonomy and Disclosures Regulations) and other industry initiatives contribute to harmonising its definition."
Looking ahead, the report said the ESG market in Europe can be expected to grow further amid "booming demand" and an "ambitious sustainable finance agenda" set out by the European Union.
However, it warned that players from across the industry who wish to market ESG products in the EU will face stricter rules, "hopefully encouraging a global 'race-to-the-top' in mainstreaming sustainability and fighting ESG-washing".