Credit: Canva ProPreqin, a provider of alternative assets data and insights, has recently released its annual report, ESG in Alternatives 2023, which sheds light on the rapid growth of environmental, social, and governance considerations within the private markets including a notable increase in capital dedicated to the topic.
The report explores the fundraising trends, fund sizes, and regional distribution of ESG capital across different alternative investment strategies.
According to Preqin's report, there has been a substantial three-fold increase in annual capital raised for ESG funds between 2020 and 2022, soaring from $29 billion to $92 billion. Notably, Europe-based ESG funds secured the majority share of aggregate capital, capturing 79% of the total, followed by North America at 14% and APAC at 7%. The average size of ESG funds also witnessed growth, rising from $400 million in 2017 to nearly $600 million in 2022.
While the debate around whether ESG contributes to long-term returns remains inconclusive, the report reveals that ESG considerations do influence investors' decision-making processes.
In a survey conducted by Preqin, 29% of investors reported having turned down a deal due to ESG concerns, while an additional 43% expressed their willingness to do so. Investors perceive ESG as a means to manage downside risks, even if the full benefits of ESG investing may take time to materialize.
While some investment strategies do not neatly fit into the ESG framework, impact funds have gained traction, particularly in North America. Impact investing acknowledges a trade-off between financial returns and achieving specific goals that benefit society or the environment. The report highlights a substantial increase in impact fundraising across alternative investments, with aggregate capital raised surging from $2.6 billion in 2019 to $33.6 billion in 2022. North American funds dominate impact fundraising, accounting for 59% of aggregate capital, followed by Europe at 37% and APAC at 2%.
The report also delves into various other insights, including the prominence of impact funds in venture capital compared to ESG integration funds, the sector breakdown of ESG funds across regions, opponents' resistance to ESG's rise, and the rise of ESG-related litigation in different industries
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