Asian countries only accounted for 2.4% of global inflows into ESG funds, and recorded net outflows of $894m during the second quarter this year. The region bucked the global trend, which saw inflows of $71.1bn, up 72% compared with the first three months of the year.
“Global strong inflows were buoyed by the broad market recovery from the first-quarter coronavirus pandemic market sell-off. The continued inflows speak of the growing investor interest in ESG issues, especially in the wake of the Covid-19 crisis,” said Hortense Bioy, Morningstar’s director of sustainability research for Emea and Apac and author of the report.
Assets in sustainable funds hit a record high of $1.07trn as of the end of June, up 23% from the previous quarter. Europe continued to dominate the space, garnering 86% of the global inflows, while the US took in 14.6%.
The report provides further evidence of the dominant role Europe and North America have in ESG investing. Most recently, a survey by KPMG found that 80% of sustainable assets are held in the two continents.
Global Sustainable Funds 2Q 2020 Statistics
Indeed, every country in Apac registered lower inflows into sustainable funds, according to Morningstar, although the region’s large second-quarter outflows were mainly driven by China sales of $1bn, which the firm attributes to retail investors “churning” funds, taking profits after brief holding periods.
Taiwan bucked the regional trend and registered the largest inflows into ESG funds for the second consecutive quarter, attracting almost $130m.
Moreover, as Morningstar acknowledged, the regional figures probably underestimate the ESG fund flows in Hong Kong and Singapore. The two hubs have only $283m and $6m respectively of locally-domiciled sustainable funds, but it is common for Hong Kong and Singapore investors to buy European Ucits funds – including those with ESG mandates.
“It is therefore a challenge to determine how much money in sustainable funds is held by investors in these two markets,” said Bioy.
Walking the talk
Yet, Asia is still an ESG laggard. Several reports show that the main barriers to ESG integration into fund managers’ investment processes are a limited understanding of ESG issues and a lack of comparable, quality data.
A survey of licensed asset managers by Hong Kong’s Securities and Futures Commission (SFC) in December 2019 found that only 35% of 660 firms consistently integrated ESG factors in their investment and risk management processes.
On the other hand, a report last March by the Economist Intelligence Unit (EIU), called “Financing sustainability: Asia-Pacific embraces the ESG challenge”, found that 68% of 161 investors in Australia, New Zealand, Japan, Hong Kong and Singapore intend to increase their allocations to sustainable finance over the next year. In addition, 27% of survey respondents expect to have 25%-50% of their AUM in sustainable investments in three years’ time.
Meanwhile, regulators throughout the region, and especially in Hong Kong, have been keen to promote sustainable investing.
Nevertheless, Asia ex-Japan saw the launch of only five sustainable funds in the second quarter of 2020.
In Taiwan, SinoPac Taiwan ESG Plus Fund-I raised $62m in April 2020, and in Thailand there were two new products, launched as tax-efficient Super Savings Fund Extra vehicles, whose $3m of assets raised in April quickly grew to $18m by the end of June.
In South Korea, two ESG open-end funds were launched in the second quarter, both managed by Mirae Asset, and they included a sustainable ESG bond product.
Yet, the number of sustainable fund launches in the region was negligible compared with other regions.
For instance, there were 107 new sustainable funds in Europe, bringing the total number of sustainable funds in the continent to 2,703.
Asia ex-Japan Sustainable Fund Flows ($m)
Despite the outflows, sustainable fund assets in Asia ex-Japan actually expanded for the fourth-consecutive quarter to $8.5bn as of the end of June, up 11% from March., due to recovering stock markets.
China and Taiwan led the asset growth during the second quarter of 2020, solidifying their top two positions as the largest sustainable markets in the region.
Asia ex-Japan Sustainable Fund Assets ($bn)