The rise in demand for sustainable investments is driving a “structural reboot” of private market investing in Europe, with environmental, social and governance funds on track to account for up to two-fifths of the industry’s assets in just a few years.

According to research from PwC, ESG private market assets could hit between €775.7bn and €1.2tn by 2025, up from €253bn in 2020, as regulation and client demand force an overhaul of private equity, real estate, infrastructure and private debt funds.

The PwC forecast suggests that ESG assets could comprise 27 to 42 per cent of Europe’s entire private markets asset base in 2025, up from nearly 15 per cent last year.

Olivier Carré, financial services market leader and sustainability sponsor at PwC Luxembourg, said the research was “bullish” on the outlook for ESG growth in private markets.

He said new rules such as the EU’s sustainable finance disclosure regulations were changing Europe’s investment landscape, with PwC’s research finding that about a third of the respondents it surveyed cited regulatory developments as one of their primary drivers for revamping their investment processes with respect to ESG.

“We think [ESG will result in] a structural reboot of the industry,” he added. “We strongly believe that [general partners] with strong ESG skills and focus will not only have better investment performance but also higher shareholder and stakeholder recognition.”

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