Private capital ESG fundraising hit $55bn (€51bn) by the end of April 2024 – a pace comparable with 2022’s high of $163bn over 12 months, according to analysis from Preqin.
The ESG in Alternatives 2024 report revealed a resurgence in ESG fundraising in 2024, signalling “its continuing relevance for alternatives”. However, it also showed that differences in target returns and manager indicators between asset classes persist.
However, dealmakers remain concerned about ESG interim results, with Preqin’s latest limited partners survey revealing a majority of investors (60%) reporting they have turned down an otherwise attractive investment over ESG concerns or would do so.
According to Preqin, this shows most investors still see ESG alignment as critical, and the fact that larger investors are often subject to greater external scrutiny may drive more rigorous due diligence on ESG factors.
Alex Murray, VP, head of real assets, research insights at Preqin, commented: “ESG is proving to be more durable than many had anticipated following the return to focus on return generation in a higher for longer scenario. The strong growth in its fundraising share across private markets suggests more managers want new funds to be acknowledged as ESG funds.
The reasons vary from being more able to raise capital as well as risk management and deal selection. Regardless, the still relatively nascent sector within alternatives will continue to grow despite any backlash in the States, given Europe’s more accommodating regulatory environment.”
Key findings
Using fundraising, performance and ESG policy data, Preqin’s report is designed to examine the role of ESG in the alternatives market.
While ESG is now embedded across alternatives, the uptake is greater in some asset classes and regions than others. For example, European managers continue to dominate the space, according to the report, accounting for 68% of the $55bn total assets.
Furthermore, the share of all private capital fundraising taken by ESG funds has continued to rise, reaching over 21% in 2024 despite a fallback in 2023, supporting the “enduring relevance” of ESG at a time when many have written it off as a “transient fashion”.
The mean performance of ESG funds, meanwhile, was 13.5%, compared with 15% for all private capital funds. Even accounting for asset class, the report noted there appears to be no difference in performance between ESG and non-ESG funds, although ESG impact funds do show significantly lower returns at just 7.4%.
Interim results from Preqin’s June 2024 investor outlook survey backed this up, showing two-thirds (66%) of investors globally believe ESG funds tend to perform the same as non-ESG funds. ESG funds do, however, show lower variance in returns. This is attributed to them being better at being able to manage downside risks.
Elsewhere, Preqin noticed a growing number of renewable energy deals. An estimated aggregate deal value across the period from 2014 – when Preqin began to track such deals – to April 2024 stands at $769bn. Further, the growing relevance of renewables “is evident in the share of infrastructure deals accounted for by the sector”, which reached a record 59% in 2023, compared with 48% in 2014.
