LONDON, 3 July 2024 – Preqin, the global leader in alternative assets data, tools, and insights, today published its ESG in Alternatives 2024 report. The report provides insights into the environmental, social and governance (ESG) landscape across the alternatives industry globally, utilizing Preqin’s fundraising, performance, and ESG policy data.

At the regional level, the report highlights how the United States continues to lag Europe in ESG fundraising and assets under management (AUM), as well as ESG disclosure. Asia-Pacific (APAC) remains a smaller part of the overall global ESG alternatives landscape by AUM, as the third largest global region.

At the asset class level, private equity and infrastructure continue to dominate ESG fundraising – they collectively raised 66% of all ESG funds raised ($55bn) in 2024 by April, or $18.4bn and $17.9bn, respectively*. Infrastructure investors also continued their lead in ESG adoption in 2024, with 50% of surveyed infrastructure investors reporting that they have an ESG policy in place**.

How ESG is utilized by the alternatives industry

ESG is perceived by some as a fundraising tool for alternatives fund managers that need to align with investors’ ESG policies. But many industry participants see it as a means of mitigating risks to returns and reputation. Shedding light on this debate, one key finding from the report is that private ESG funds’ performance is not significantly different to non-ESG private funds overall, as per Preqin data. The average internal rate of return (IRR) of ESG funds was 13.5%, compared to 15% IRR for non-ESG private capital funds, when looking at samples of 215 ESG funds and 10,812 non-ESG funds. Adding to this, 66% of surveyed investors globally believe ESG funds tend to perform the same as non-ESG funds.

Europe remains the leading ESG market in alternatives

Europe’s more developed ESG regulatory environment reflects its position in ESG in alternatives. This is further indicated by European fund managers accounting for 68% of the amount raised by ESG funds globally by April, since the start of 2024. Additionally, European ESG funds account for 55% of both ESG funds currently in market globally and capital targeted for fundraising.

Notably, Europe dominated impact fundraising so far this year, increasing its share of aggregate capital raised from 67% ($15bn) over 2023 to 79% ($5.2bn) by April 2024. North America took the majority in climate funds’ aggregate capital raised. North American climate funds raised $15bn, or 82% of the total globally in 2024 by April.

Alex Murray, VP, Head of Real Assets, Research Insights at Preqin says: “The strong growth in ESG fundraising across private markets suggests more managers want new funds to be aligned with ESG fund requirements. The reasons vary from being more able to raise capital to aiding risk management and deal selection strategies. Regardless, the still relatively nascent sector within alternatives will continue to grow, owing to Europe’s more developed regulatory environment.”

Additional key findings include:

• ESG an important dealmaking consideration: ESG alignment is still critical to dealmaking. Interim investor survey results show that 60% of alternatives investors have or would turn down a deal over ESG concerns.

• Renewables and infrastructure go hand-in-hand: Preqin data shows that renewables within the infrastructure asset class is a key sector driving ESG growth in alternatives. A record 59% of infrastructure deals were in renewables in 2023, while 72% of the $1.23tn of capital raised since 2014 with exposure to renewable energy was by infrastructure funds. Renewable energy deals tracked by Preqin from 2014 to 2024 amount to 14,995 as of April. The tracked value of all these deals is $769bn.

• European managers lead ESG disclosure: Preqin’s ESG policy data informed by Preqin’s ESG Solutions shows that European fund managers lead on ESG disclosure, by making policies and procedures readily available. The average proportion of ESG management indicators made available by European fund managers is 16%, compared to 9% by their North American peers.

#ENDS#

Note to editors:

*$14bn of fundraising in 2024 was raised by three large multi-strategy funds. This accounts for the difference between regional and asset class aggregate fundraising figures.

**Interim results from Preqin’s global alternatives investor outlook survey. The findings of the final survey results will be published in Preqin’s Investor Outlook H2 2024 report.

Looking at Preqin’s ESG Solutions, Preqin currently tracks 37 different ESG management indicators, suggesting that European fund managers disclose 6 of those 37 indicators on average. Preqin is set to expand the number of management indicators to 73 in the month of July.