UK ' leading' EU ESG investment market

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Shadrach   in Banking & Money

Last updated: 20 January 2020, 07:54 GMT

According to joint research by Association of Luxembourg Investment Industry (ALFI) and PwC Luxembourg, the UK is the' leading European market' for financial, social and governance (ESG) based investments, with £ 6.439bn assets under management.

The joint report, Beyond their Borders: Evolution of foreign investment through pension funds, stipulated that European managers took the lead in applying ESG criteria to investments, with expectations of 9.3% growth from 2017 to 2025.

In the meantime, the UK is projected to see growth of about 10.5% over this eight-year span, "reflecting the growing importance of ESG for asset managers," the report stated.

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The report also highlighted that growth in the ETF market could be a "future driver" for sustainable finance, predicting increasing pressure on pension funds to provide evidence of effective ESG investment.

The report highlighted the impact of the 2017 IORP II Directive, which requires European pension funds to assess climate-related risks, noting that 17 per cent of pension funds were considering climate change investment risk in 2018 (compared to 5 per cent in 2017).

The report also pointed out that numerous EU member states are implementing policies to "encourage ESG adoption," highlighting the British rules adopted in October 2018 and 2019 respectively by the Department for Work and Pensions.

The report stated:

The UK pension industry is under ever-increasing pressure with... ever-increasing policies and regulations, and increasing demands from policymakers and regulators for better transparency and governance.

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The Uk investment sector was also one of the world's most developed, with pension funds at year-end 2018 equal to 99 per cent of Britain's £ 2.2 tn GDP.

This ratio of pension assets to GDP is expected to continue to rise as pension assets grew at a compound annual growth rate (CAGR) of 5.5% between 2014 and 2018, outperforming GPD growth (CAGR 4.7%).

While the report also stipulated that the sector is "fully divided," with the 10 biggest pension funds owning 18% of overall pension assets, it also stressed the "consolidation effect."

Recently the new Purple Book of the PPF revealed a' shrinking' of the DB world over the last year.

 




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