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Exchange-traded funds focused on environmental, social and management themes gained only about 4 percent of total Asia Pacific ETF assets, but their market share is growing rapidly.

Twenty-five ESG ETFs debuted in Asia-Pacific in 2020, while another 31 were listed in the first six months of last year, Cerulli Associates noted in a report.

The products attracted about $ 2 billion in inflows in 2020 and 2019 compared to just $ 159.8 million in 2016. Net flows in the first half of 2021 already amounted to $ 1.7 billion.

“Key market executives in the region are introducing more ESG-themed ETFs to provide cost-effective access to responsible investment products and to differentiate themselves amid stiff competition,” Cerulli noted in the report.

This article was previously published by Ignite Asia, a title owned by the FT Group.

When asked about their reasons for choosing ESG ETFs over ESG mutual funds, asset managers said Cerulli ETFs are easier to implement given managers’ ESG capabilities, while others said ETFs offer more flexible, liquid and lower-cost assets. investment options. ”

Total ESG ETFs under management in the countries covered by the Cerulli research – Australia, China, Taiwan, Japan, Korea, Hong Kong, Indonesia, Malaysia, India and Singapore – increased from $ 308.7 million in 2016 to $ 12, 8 billion grown from June 2021.

Australia, China and Taiwan were the dominant regional players with 86.8 percent of total ESG ETF assets in Asia-Pacific in 2020.

ESG ETF growth was particularly strong in Australia, where assets in sustainable funds rose from $ 156.2 million in January 2016 to $ 4.9 billion in June 2021.

The research found that Generation Z was most concerned about ethical investing, with 55 percent likely to invest in a fund that integrates ESG considerations.

China also saw strong growth, with assets jumping from $ 15 million in 2016 to $ 3.3 billion from June 2021. There were a number of launches in 2021 that follow President Xi Jinping’s commitment in September 2020 to achieve carbon neutrality in the country by 2060.

“While there were only four new ESG ETFs in China in 2020, 11 were launched in the first half of 2021, with more than half of them including low-carbon or new-energy themes,” Cerulli noted.

Taiwan has seen assets in ESG ETFs increase from $ 101.4 million in 2018 to $ 1.2 billion in 2019 and $ 1.7 billion in 2020. It had $ 2.6 billion in ESG ETF assets as of June 2021.

Early last year, domestic fund firms were in Taiwan chase to deploy new ETFs bearing an ESG label, aligning with the sustained appetite for low-cost passive vehicles and increasing popularity of sustainable investment.

“The [Taiwan] ESG ETF market boom in the first half of the year can not only be attributed to demand factors, but also to fund houses that scrambled to express their ESG strategies before new regulations were introduced in July 2021, ”reads the Cerulli report .

Last July, Taiwan’s Financial Supervisory Commission Explained stricter criteria and disclosure requirements for ESG-labeled funds, which require managers to set at least one ESG objective and allocate more assets to achieve those objectives.

The Cerulli researchers noted that there has been an increasing use of robo-advisors in Asia over the past 10 years.

“In Singapore, for example, robo-advisors offer thematic investment, including ESG-themed funds, in addition to traditional goal-based investment,” Cerulli noted.

Cergi co-analyst Ng Hao Qin said that “the pace of ESG ETF launches in the Asia-Pacific region is expected to continue as investors seek cheaper alternatives to invest sustainably”.

“While there are concerns that such funds may not be sufficient to implement a sustainable investment strategy, some of them have proven that they have well-documented ESG processes or practices, while retaining their benefits of transparency, liquidity and provide flexibility to investors, “he added.

* Ignites Asia is a news service provided by FT Specialist for professionals working in the asset management industry. It covers everything from new product launches to regulations and industry trends. Trials and subscriptions are available at ignitesasia.com.

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