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China sustainable funds reverse net outflows in Q3

The number of new fund launches also reached a record high during the quarter, according to Morningstar.
BNPP AM to launch ESG fund in China

China-domiciled sustainable funds saw net quarterly inflows for the first time this year at $1.52bn, Morningstar Direct data found.

Driven by eight new carbon neutrality-themed ETFs, the inflow for this quarter reversed the net outflows of $297m and $1.26bn in the first two quarters respectively.

“There were 24 sustainable fund launches in China in the third quarter, a record high and they raised $3.65bn in total. The majority of them are climate-focused,” said Dean Wang, Morningstar China’s associate analyst of manager research.

Meanwhile, there were only 12 and 11 new fund launches in the two previous quarters respectively.

More than 80% of the total net inflows, or $1.25bn, were invested in passive funds, while the remaining 17.4% went into active funds.

E Fund CSI SEEE Carbon Neutral ETF, which was launched on 11 July, was the fund with the largest inflows with $373.5m.

Despite posting net inflows in the third quarter, assets in sustainable funds dropped 16.4% quarter over quarter to $30.4bn, Morningstar found.

Compared with the asset level in the third quarter 2021, net assets in sustainable funds have fallen over 35% from $47.2bn.

Actively-managed sustainable funds, which accounted for almost 90% of China’s sustainable assets, saw a fall of 19.8% in AUM compared with the second quarter, while passive funds posted an increase of 27.7%.

“Chinese investors’ appetites for sustainable strategies are largely influenced by market conditions and fund performance rather than decisions over the characteristics and benefits of ESG or sustainable investing,” Wang added.

“ESG adoption in China still faces challenges due to low awareness of ESG investing. Encouragingly, the Chinese regulator has been promoting greater ESG adoption among asset managers as part of the country’s road map to green finance.”

Part of the Bonhill Group.