ESG funds take growing share of private capital fundraising
ESG credentials are increasingly important among alternative investors, although private debt lags behind private equity and infrastructure, according to a new report.
Research from data provider Preqin found that ESG funds collectively raised $55bn (£43.3bn) in 2024 by April, with the lion’s share coming from private equity and infrastructure at $18.4bn and $17.9bn, respectively.
Preqin said this indicated a resurgence, with the volumes at a pace comparable to 2022’s peak of $163bn.
ESG fundraising surged in the pandemic era, with $282bn raised collectively across 2021 and 2022, according to Preqin, compared to a total of $226bn raised in the preceding seven years.
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In 2023, ESG fundraising contracted across all alternative asset classes to $90bn – albeit still far above pre-pandemic levels – except private debt, which saw its busiest year with $23bn secured.
This was aided by Arcmont Asset Management’s $11bn raise for its Direct Lending Fund IV, a Sustainable Finance Diclosure Regulation Article 8 labelled fund.
This year, Preqin noted that the share of all private capital fundraising taken by ESG funds has continued to rise, reaching over 21 per cent in 2024.
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“This supports the enduring relevance of ESG at a time when many have written it of as a transient fashion,” the report said.
Additionally, an interim investor survey by Preqin suggested that ESG is an important dealmaking consideration, with 60 per cent of alternatives investors saying they have or would turn down a deal over ESG concerns.
Europe leads the way
European alternative fund managers continue to dominate the ESG space, accounting for 68 per cent of the amount raised by ESG funds globally between January and April 2024.
They also account for the majority of capital raised by impact funds, at 67 per cent in 2023 and 79 per cent in the first four months of 2024.
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However, North America took the majority in climate funds’ aggregate capital raised, at $15bn, or 82 per cent of the total globally in 2024 by April.
“The strong growth in ESG fundraising across private markets suggests more managers want new funds to be aligned with ESG fund requirements,” said Alex Murray, VP, head of real assets, research insights at Preqin.
“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.”
