Outside of China, Asia ex-Japan’s third quarter net inflows into sustainable funds surpassed the second quarter by 43%, according to Morningstar. Excluding China, Asia ex-Japan’s sustainable fund assets grew by 7% in the third quarter of 2021, reaching $14.3bn at the end of September.
The strong demand was propelled by the $1.9bn of net inflows in Taiwan, that can be attributed to the successful launch of the Shin Kong Environmental Sustainability Bond Fund, which raised about $945m. Taiwan overtook South Korea (which also had net inflows) as the second-largest sustainable fund market, with $5.7bn in assets.
There were 34 new ESG product launches in the third quarter, with 20 from China, nine from South Korea, four from Taiwan, and one from Malaysia.
The majority of the new launches were equity products, while there were only three fixed-income and nine allocation (mixed-asset) products. Nine out of the 20 new sustainable fund launches from China were equity ETFs, which reflects the rapid development of passive investing in China.
Most sustainable fund launches in China focused on climate-related themes. This is in line with the government’s efforts to meet its carbon emission reduction targets, which included the initiation of a national carbon trading market in July 2021. This resulted in strong investor interest in new energy and low carbon products in China.
Seven out of the nine funds launched in the Korean market in the third quarter were equity funds. Five of these have an environmental theme. Environment-related funds have been on the rise since October 2020, when President Moon committed to carbon neutrality by 2050.
One particularity of the Korean sustainable fund market is that money tends to flow into bond funds, an investment vehicle for institutional investors, according to Morningstar. However, there are not many sustainable bond funds available, so in the last quarter, inflows were concentrated into a newly launched bond fund KB Star ESG Bluechip Mid STFd C-F.
Following the introduction of the European Union Sustainable Finance Disclosure Regulation (SFDR) on 10 March 2021, the number of sustainable funds captured in the global sustainable universe has grown by 51% over the third quarter of 2021.
Mainly driven by SFDR in Europe, global sustainable fund assets almost doubled in the past six months to reach $3.9tn at the end of September 2021.
Assets of global sustainable funds continue to outpace the market. In the third quarter, global sustainable fund inflows declined by 15% from a quarter earlier to $134bn. However, sustainable fund inflows still outpaced the overall global fund universe, which recorded a 20% drop in inflows over the same period.
“Europe’s dominance of the sustainable fund space has increased as its ESG-focused universe expanded after the introduction of the SFDR in March. In the third quarter, Europe accounted for 81% of the quarter’s net inflows globally,”Hortense Bioy, Morningstar’s director of sustainability research of global, said in a statement.