Asia sustainable fund inflows slow

Volatile EV and renewable energy stock prices put off investors

Asia ex-Japan sustainable fund assets grew by 2% in the fourth quarter to $14.4trn from a quarter earlier, according to Morningstar’s latest analysis on Asia ex-Japan sustainable funds. But, net inflows were $4.2bn during the quarter, roughly half the amount in the third quarter.

China-domiciled sustainable funds continued to see inflows during the fourth quarter of 2021, but net inflows of $4.1bn were down from strong inflows of $7.6bn in the third quarter.

“Throughout the whole year of 2021, China sustainable funds attracted inflows of $11.6bn, mainly driven by the rapid growth of environmental sector funds and impact funds investing in ‘green economy’ related industries such as renewable energy, electric vehicles, and environmental protection,” said Verna Chen, Morningstar China’s manager research analyst

However, as the stock prices of the electric vehicle (EV) and renewable energy sectors became volatile in the last quarter of 2021, investors turned more cautious towards renewable energy funds, which represent a large fraction of China sustainable investment universe, hence the slowdown of net inflows, according to Chen.

Nevertheless, as of 31 December 2021, assets invested in China sustainable funds reached a record of $56.1bn, roughly double the amount at the end of 2020. Environmental sectors funds and low carbon thematic funds dominate the China sustainable fund landscape, in line with Beijing’s commitment to reach carbon neutrality before 2060.

The market saw a record number of 62 new sustainable funds hit the shelves, 50 of which were environmental sector funds and impact funds focusing on low carbon economy or carbon neutrality.

Morningstar’s sustainable fund universe comprise open-end funds and exchange-traded funds that, by prospectus, factsheet, or other available resources, claim to have a sustainability objective and/or use binding ESG criteria for their investment selection.

The category does not contain funds that employ only limited exclusionary screens, nor does it contain the growing number of funds that now formally integrate ESG considerations in a nondeterminative way for their investment selection.

 Fund Domicile ($)Q1Q2Q3Q4Full Year 2021
Hong Kong155,918,609-40,582,648-29,637,10185,178,324170,877,184
South Korea1,850,813,504721,999,82879,244,373-349,186,7992,302,870,906
Asia ex-Japan Total3,377,975,489289,327,0538,561,005,9034,202,768,57016,431,077,015
Source: Morningstar