There has been a significant increase in ESG investments in recent years. In 2022, PwC stated that ESG-orientated AUM grew over eight-fold between 2015 and 2021 – from $2.2 trillion to $18.4 trillion.  PwC also predicted that ESG-orientated AUM would increase to $33.9 trillion by 2026 and capture over a fifth of global AUM.  The growth in ESG investments appeared relentless.

But in the two years since PwC’s analysis, a movement challenging the consensus on ESG has begun testing this assumption. This movement has taken hold of certain state legislatures in the US – restricting ESG considerations in a range of investment contexts – while protests from civil society in the EU have forced a number of national governments and the European Commission to pause new environmental measures. Several of the largest asset managers have also changed the way they publicly discuss their approach to ESG.

Nonetheless, regulators continue to press ahead with stricter ESG regulation for asset managers and other sectors of the economy. Late 2023 saw the publication of the UK FCA’s Sustainability Disclosure Requirements and investment labels regime, while early 2024 saw the publication of the US SEC’s new climate-related disclosure regime. 

The EU has also agreed the Corporate Sustainability Due Diligence Directive requiring more companies to mitigate human rights abuses and environmental impacts in their supply chains.

What does this mean for alternative investment managers? There is a difficult dynamic at play: tracking the changing political mood, jumping through the regulatory hurdles, taking ESG into account – but not in a way that alienates any investors that have become wary of it – and all the while trying to maximise returns. 

This paper seeks to provide the context to help you navigate the challenges. We provide a detailed look at ESG developments in the United States, the European Union and United Kingdom and examine the likely political and regulatory direction of travel. We also offer insight from AIMA member firms and ESG practitioners. We hope you find this paper helpful.

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  Jack Inglis

  Chief Executive Officer, AIMA