Sustainable Products Take Root in Asia
July 26, 2021 — Singapore
Boosted by the pandemic, such themes have become more ingrained in the industry and investors’ mindsets
Environmental, social, and governance (ESG) investing hit a milestone in Asia last year. While incorporation of ESG factors in investment processes has received growing acceptance among Asia’s largest institutional investors and wealthy investors in recent years, 2020 saw greater retail awareness of and interest in ESG-based investing, with pandemic-related lockdowns leading to a rise in sustainable themes.
Other factors, including regulatory and government initiatives, and—more importantly—solid performance of some ESG-focused funds, have played pivotal roles in retail interest. A Cerulli survey of distributors shows that increasing evidence of the performance of ESG funds is the most significant reason for them to onboard these products. ESG is not mandatory from the point of view of due diligence teams, and has been rated among the least important factors in product selection, yet distributors are increasingly evaluating ESG aspects even while onboarding non-ESG-related products, according to Cerulli’s research discussions.
China is seeing an increasing number of fund launches investing in new energy vehicles and renewable energy, while Hong Kong and Singapore have encouraged managers to launch more ESG and green funds. Along with an increasing number of product launches that focus on the environment, Hong Kong and Singapore have seen ESG-integrated products in equity, fixed income, and multi-asset. In Korea, the government announced a Green New Deal in July 2020 which will see it investing KRW42.7 trillion (US$35.4 billion) in key green projects, including renewable energy and green mobility, over the next five years. This has resulted in strong interest from asset managers in launching several Green New Deal-linked funds. A few have also rebranded or repositioned some of their existing funds, to be in line with the Green New Deal.
ESG thematic fund launches are expected to continue trending, with nearly two-thirds (64%) of managers in Cerulli’s survey indicating plans to launch such funds over the next two to three years. The environmental factor has dominated ESG-thematic fund launches across most Asian markets, driven by increased focus by regulatory and government bodies on meeting climate goals. Managers at some point will have to consider looking into product developments in other aspects or incorporating differentiating features in their product offerings. Blending ESG with dividend or regular income, incorporating quantitative features, or bundling multiple themes in a single product are some ideas that managers can explore.
“The concept of ESG investing has evolved over the years, and what was once seen as a fad seems to have become more ingrained in the asset management industry and investors’ mindsets,” said Leena Dagade, associate director, Asia with Cerulli. “Currently, the focus is on using ESG as a differentiating factor or to raise brand profiles, although it is likely that over the long term, more funds will incorporate ESG considerations. Managers need to adapt so as not be left behind, by boosting their ESG data systems, resource capabilities, and client education activities.”
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