Editor’s note: This article was first published on ESG Clarity Asia.
Selling ESG funds to retail investors in mainland China continues to be difficult as awareness is still insufficient and investors care more about returns, according to a report conducted by Cerulli Associates.
This is supported by Cerulli’s survey findings showing that 55.6% of retail banks are seeing low demand for sustainable products. This compares with 22.2% of private banks and 33.3% of family offices in the mainland indicating that demand is low for such products.
On the flipside, 80% of foundations and 70% of endowments surveyed said that there is high demand for sustainable products, the report shows.
“Current demand in China is driven by large institutional investors and HNWIs,” the report said.
On the institutional front, for example, two Chinese asset owners have signed the Principles for Responsible Investment (PRI). They are Ping An Insurance Group, the country’s second-largest life insurer by total assets and general account premiums, and Wu Capital, a leading family office in China.
The report also noted that China Life signed the PRI via its asset management arm, China Life Asset Management Company.
While other insurers are not PRI-compliant, they have also shown commitment to ESG principles by conducting socially responsible investments and issuing insurance products, Cerulli added. They include Aegon Life, Funde Sino Life, ICBC-Axa Life, Guaha Life, Evergrande Life, Hua Insurance, CCB Life, JK Life, Foresea Life and Taikang Life.
Meanwhile, HNWIs have better ESG awareness. Citing a survey conducted by Noah Holdings, Cerulli said that 84% of investors consider the “G” factor in investment decisions, while “E” and “S” were considered by 40% and 49% of respondents, respectively.
PRODUCT DEVELOPMENT
Asset managers in China are also starting to develop ESG strategies using various product structures, including mutual funds, ETFs, wealth management products (WMPs) and private funds, according to the Cerulli report.
As of June last year, there were 47 ESG mutual funds and ETFs in China, with a combined AUM of $7.3bn, up by 32.3% from the end of 2019.
Besides fund management firms, banks and banks’ wealth management subsidiaries are also keen to develop ESG strategies. As of the end of November, China had 42 ESG WMPs, with Huaxia Bank being the leading player in terms of number of products launched at 27, followed by Agricultural Bank of China Wealth Management with 10 WMPs.
Foreign managers have also shown interest in offering ESG strategies in China. For example, BNP Paribas Overseas Investment Fund Management launched an overseas water resource private investment fund via the Qualified Domestic Limited Partnership (QDLP) scheme in January 2019.
Robeco is also reportedly planning to launch two private funds which offer an ESG-integrated approach, including a fundamental A-shares strategy, via its private fund business, to be set up by early 2021, according to the report.
Morgan Stanley Huaxin Fund Management also launched its first ESG fund, the Morgan Stanley ESG Quantitative Advanced Balanced Fund, in July 2020, the report added.
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