According to estimates from Bloomberg Intelligence, China is set to pose the fastest growth in Asia for environmental, social and governance (ESG) investments after the country increased exchange-traded fund assets 18-fold in the past two years.
What is Happening?
- In trying to reach its carbon neutrality target for 2060, China will push for renewable energy and electric vehicles to encourage more fund flows into ESG-related ETFs, contributing to a 20% growth in assets across Asia this year, according to BI analyst Esther Tsang, who says that “China is going to dominate.”
- However, even with this growth, China still only accounts for a little over 10% of Asian ESG ETF assets under management. Japan is the leader, accounting for about 80% of the USD$40 billion in ESG funds that trade on exchanges. As a continent, Asia is behind North America and Europe, accounting for less than a fifth of the $218 billion in global ETFs in this sector.
- Strong performance is adding to asset growth in China, as well as fresh inflows of ESG investments. The KraneShares MSCI China Environment Index ETF that trades in New York surged 132% in the past 12 months, lifted by its holdings of electric vehicle makers Nio Inc. and Byd Co., along with Xinyi Solar Holdings Ltd.
- The Global X China Clean Energy ETF in Hong Kong has also more than doubled in the past year.
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Amy Lo, co-head of Asia-Pacific wealth at UBS Group AG in Hong Kong, says that solid returns, as well as the need to build more resilient portfolios, are attracting investors to the ESG sector in Asia. The Swiss bank’s surveys have shown that three-quarters of family offices are making some sustainable investments already. Lo adds that “ESG has become increasingly compelling for investors. This is a real game changer.”