Despite the pandemic-driven market sell-off earlier this year, investors poured $45.6bn into sustainable funds globally in the first quarter, according to a Morningstar report.
This compares to an outflow of $384.7bn for the overall fund universe, the report noted.
“Investors in sustainable funds are typically driven by their values, invest for the long-term and seem to be more willing to ride out periods of bad performance,” Hortense Bioy, director for passive strategies and sustainable research for Europe, said in a statement highlighting the report’s findings.
The same is true in Asia (ex-Japan), where Q1 inflows into locally-domiciled sustainable funds were about $900m, accounting for 2.35% of the global inflows, according to the report.
Capital flows – Sustainable funds
In terms of performance, Bioy acknowledged that Morningstar has not yet done any analysis of Asian ESG funds during the Covid-19 selloff. However, she said that US- and European-domiciled ESG funds, on the average, outperformed traditional funds.
“This can be explained by a combination of factors. Firstly, being underweight in less ESG-friendly sectors like oil and gas and overweight in technology and healthcare helped many ESG-aligned portfolios.
“Companies that score high on ESG tend to be large well-run businesses that treat their shareholders well, address their environmental challenges, enjoy more conservative balance sheets and have lower levels of controversies. Many such companies tend to be more resilient during market downturns,” she said.
In Asia, companies with high ESG scores relative to their peers have outperformed the broader index both on a year-to-date and longer-term basis, according to data from FE Fundinfo.
Performance (%)
| Index |
YTD |
Three years |
Five years |
| MSCI AC Asia ex Japan ESG Leaders |
-10.2 |
13.9 |
19.23 |
| MSCI AC Asia ex Japan |
-11.37 |
8.03 |
13.02 |
Source: FE Fundinfo. In US dollars. As of 12 May 2020.
The Pinebridge fund
While sustainable funds attracted money across all major markets in Asia (ex-Japan) during the first quarter (see below), almost half of the region’s inflows came from one fund in Taiwan, which is the Pinebridge Global ESG Quant Bond Fund, the report noted.
The Pinebridge fund, which was launched in late-January, gathered $429m in new money during the first quarter, according to the report.
The fund invests the majority of its portfolio in investment-grade global bonds with high ESG scores, according to Emily Chang, Taipei-based head of marketing for Taiwan at Pinebridge.
Besides being an ESG product, Chang claims that it became popular as it is both the first ESG global bond fund and first quantitative bond fund sold in the market.
Elsewhere, the Axis ESG Equity Fund, which is managed by Mumbai-based Axis Mutual Fund, also had sizable inflows of $235m during the first quarter, the report noted. The product invests in Indian companies that have high ESG scores, with the Nifty 100 ESG Index as its benchmark, according to the firm’s website.
Axis MF is a joint venture between India’s Axis Bank and Schroders in Singapore, in which the latter holds a 25% stake.
Net inflows – Sustainable funds
Hong Kong and Singapore
While Hong Kong- and Singapore-domiciled sustainable products also registered inflows, both markets continue to represent a fraction of the Asia ex-Japan sustainable universe.
As of the end of March, Hong Kong accounted for only $234m of the nearly $8bn AUM of the sustainable universe in the region, while Singapore only had $6m, according to the report.
However, Morningstar believes that the figures are not representative of the growing investor interest in ESG in the two markets.
“Asian investors tend to invest in ESG not just via Asia-domiciled funds, but also Ucits funds especially for those in markets such as Hong Kong, Singapore and Taiwan,” Wing Chan, Morningstar’s director of manager research for Emea and Asia, said in a separate statement.
However, given that investors in Hong Kong and Singapore invest in European Ucits funds, the report acknowledged that it is difficult to determine how much money they hold in sustainable investments.
Meanwhile, China accounts for the largest share of sustainable funds in the region, representing 74% of total assets. The largest funds in the market are the Ping An-UOB CSI New Energy Car Ind ETF, the Aegon-Industrial Social Responsible Fund and the IGW Environment Advantage Stock Fund. Collectively, the three funds have $2bn in assets.
The report added that thematic investing is popular among investors in China. Of the 45 sustainable funds in the country, 33 offer exposure to themes related to renewable energy, low carbon, environmental protection and green transport.
In total, sustainable fund assets in Asia ex-Japan grew 21% in the first quarter to $7.7bn at the end of March, according to the report.
AUM – Sustainable funds
