Hortense Bioy, Morningstar
Editor’s note: This article was first published on Fund Selector Asia
Total ESG assets in the region amounted to $25.4bn at the end of last year, fueled by inflows of $7.9bn, up from only $810m in 2019, according to the latest Morningstar Global Sustainable Fund Flows report.
Allocation funds raised $4.6bn in net flows in 2020, followed by equity with $2.3bn and fixed income with $1.0bn.
However, equity remained the largest asset class represented, with $13.2bn in assets, recording a strong growth of 94% in 2020 over 2019.
The final three months of last year was especially good for sustainable funds in the region, which attracted a record quarterly high $5.0bn of net inflows.
“The disruption caused by the Covid-19 pandemic has highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations,” said Hortense Bioy, Morningstar’s director of sustainability research for EMEA and APAC.
The sustainable fund universe encompasses open-end funds and exchange-traded funds that claim to have a sustainability objective and/or use binding ESG criteria for their investment selection. Money market funds, feeder funds, and funds of funds are excluded from the Morningstar Direct data.
New sustainable product launches in Asia ex-Japan continued to remain robust, with 43 funds in last year, compared with 27 in 2019.
There were 17 new ESG fund launches from China, South Korea, India, and Taiwan in the fourth quarter. Most of the new offerings in China and India were equity funds, while South Korea’s and Taiwan’s new launches were allocation and fixed-income products.
India had the largest quarter-on-quarter asset growth, with new product launches resulting in the doubling of ESG fund assets to $1.3bn. South Korea also enjoyed significant growth in the fourth quarter, while Taiwan’s steady growth maintained it as Asia ex-Japan’s second-largest ESG market after China.
While China’s fourth-quarter data captured only 60% of ESG funds at the time of publication, investors interest in the electric-vehicle theme drove China’s fourth-quarter ESG flows to a record $3.8bn, according to Morningstar Direct..
However, the flows from the region are almost certainly understated, because the figures for Hong Kong and Singapore only include locally-domiciled ESG funds, and exclude European Ucits (domiciled in Ireland and Luxembourg or the UK) which are widely available in the two territories.
“The numbers are probably not representative of the growing investor interest in ESG in these two markets, as it is common for Hong Kong and Singapore investors to buy European Ucits funds. It is therefore a challenge to determine how much money in sustainable funds is held by investors in these two markets,” Morningstar told FSA.
Market summary of sustainable funds in Asia
| No. of locally domiciled ESG funds | No. of new launches | Net Flows ($) | Net Flows ($) | Fund size ($) | ||
| As of 2020-end | Full Year 2020 | Q4 2020 | Full Year 2020 | As of 2020-end | *YoY Growth | |
| China | 81 | 11 | 3,865,552,268 | 4,906,304,102 | 18,022,315,646 | 150% |
| Hong Kong | 2 | 0 | 4,908,130 | 15,891,895 | 353,172,289 | 20% |
| India | 8 | 5 | 496,694,819 | 745,183,166 | 1,331,862,627 | 210% |
| Indonesia | 9 | 0 | (12,841,646) | 20,458,805 | 67,929,375 | -13% |
| Malaysia | 16 | 1 | (11,224,947) | 13,742,399 | 376,562,726 | 24% |
| Singapore | 3 | 0 | (350,276) | -1,243,659 | 16,749,544 | 6% |
| South Korea | 115 | 12 | 573,524,646 | 369,984,155 | 2,185,457,709 | 14% |
| Taiwan | 24 | 11 | 102,878,350 | 1,792,939,538 | 2,944,858,125 | 336% |
| Thailand | 10 | 3 | (5,483,685) | 4,886,503 | 105,818,435 | 24% |
| Asia ex-Japan Total | 268 | 43 | 5,013,657,658 | 7,868,146,903 | 25,404,726,476 | 131% |
GLOBAL ESG POPULARITY
Assets in sustainable funds worldwide hit a record high of $1.652trn as of the end of December, up 29% from three months earlier, according to Morningstar Direct.
They received a big boost in the final quarter of 2020: global inflows were up 88% in the fourth quarter of 2020 to $152.3bn, with Europe accounting for almost 80% of these inflows.
The US took in 13.4%, up slightly from 12% in the third quarter of the year, while inflows amounted to $11.1bn for Canada, Australia and New Zealand, Japan, and Asia combined.
New product launches in the fourth quarter also hit an all-time high, with 196 new offerings, including 37 in countries outside of Europe and the United States. Asset managers also continued to repurpose and rebrand conventional products into sustainable funds, with at least 250 such funds in Europe, according to Morningstar Direct.
