Retail Investors in Asia Demonstrate Increased Demand for Sustainable Products
January 31, 2022 — Singapore
Investor education, government initiatives, and COVID-19 have contributed to rising awareness of ESG
Although demand for environmental, social, and governance (ESG) investments in the Asia-Pacific region is still mostly driven by institutions, retail appetite has increased rapidly in recent years due to rising awareness, thanks to the COVID-19 pandemic. Support from industry players, such as investor education, and government initiatives have also contributed to increasing retail awareness.
ESG funds’ assets under management (AUM) rose to US$94.2 billion as of June 2021, from US$30.8 billion in 2019, excluding negative/exclusionary screening products. This was driven by new fund launches as well as managers’ rebranding of existing funds into ESG products. Cerulli’s analysis of Morningstar data showed that 107 new sustainable investment funds—comprising ESG integration and sustainability-related thematic mutual funds and ETFs—were launched in 2020, driven by fund launches in Japan and Australia, with 25 and 19 launches, respectively. Between January and September 2021, the number of new fund launches reached 161, led by China and Japan, with a combined 76 launches.
Most of the ESG products winning assets in China are those investing in the renewable/clean energy sector, as well as those in the electric vehicle industry, with fund names usually labelled as “new energy” for the former and “new energy vehicle” for the latter. Seven of the top 20 sustainable investment funds launched between January 2020 and September 2021 are such funds from China, led by Invesco Great Wall Fund Management’s New Energy Industry Equity fund, with US$1.4 billion in assets. As of September 2021, there were 20 new energy vehicle funds and 32 new energy funds with combined assets of US$13.8 billion and US$13.9 billion, respectively, accounting for more than half of the ESG product AUM in China.
Taiwan saw a total of 30 new ESG funds launched between January 2020 and September 2021. Seventeen of these were fixed-income funds, possibly driven by Taiwanese investors’ preference for products with regular income payments, as well as institutional investors’ interest in fixed-income ESG products. The most successful of these was PineBridge Investments’ Global ESG Quantitative Bond Fund, which had AUM of US$740.3 million as of September 2021. However, the largest ESG product in Taiwan is Cathay Securities Investment Trust’s Sustainability High Dividend ETF, launched in July 2020, with AUM of US$961.8 million, highlighting the significance of the regular income feature.
Most ESG products in the region focus on the environmental aspect. Hence, there are plenty of opportunities for managers in the region to launch products focusing on other ESG aspects. Apart from the easily explainable topics of electric transport, climate transition, and low-carbon funds, there is also a possibility for managers to evaluate fund launches centered around the United Nations’ Sustainable Development Goals (SDGs). However, investors in each market are unique and have different product preferences. For example, Taiwanese investors prefer products with regular income as well as those with a thematic focus. In wealth management hubs such as Hong Kong and Singapore, introducing offshore-domiciled funds could serve sophisticated investment needs.
“The lack of ESG expertise among local managers in most Asian markets could be an opportunity for global asset managers to offer ESG products through funds of funds, feeder funds, and subadvisory arrangements, especially in Southeast Asia and Japan, or registering offshore funds in markets such as Hong Kong and Singapore,” said Siau Kean Yung, analyst with Cerulli Associates. “In this way, global players can help to accelerate ESG adoption in the region’s retail market.”
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Note to editors
These findings and more are from The Cerulli Edge—Asian Monthly Product Trends, January 2022 Issue.