Overview
A growing number of young Asians have been taking to social media to debate how to live more sustainably. In China, a discussion group titled “Leaving No Trace” on Douban, a social network platform popular among young Chinese, has attracted more than 40,000 members. Tips are traded on reducing carbon footprints such as turning old jeans into chic denim bags, using worms to make fertiliser out of food waste, or bringing reusable cups and straws to enjoy bubble tea - a favorite drink among young people in Asia.
The eco-conscious youth are not only seeking to build sustainability into their daily lives. They’re demanding investment portfolios do the same too. According to a 2024 survey by Fidelity International and YouGov, close to 70 per cent of Asia Pacific youngsters aged below 30 say it’s important to act responsibly or sustainably as investors - keeping up a trend set by millennials (30-44 years).[1] The survey also shows both cohorts to be equally optimistic about the power of investing to make a positive impact on the world.[2]
Greater transparency, clearer pathways
Most of the world’s emissions come from Asia, where robust economic growth has only increased the region’s carbon footprint. Channeling funds to local companies that take the lead in the energy transition could have enormous consequences for the fight against climate change.
Encouragingly, regulatory regimes are growing more supportive of the type of sustainable investing that drives capital to these companies - and ensures they are using the money wisely. Most notably, mandatory ESG reporting frameworks are starting to replace voluntary ones across the region. Mainland China introduced guidelines that require some 400 listed companies to publish sustainability reports by 2026. [3] It will be mandatory for listed companies in Singapore and Hong Kong to make climate-related disclosures from 2025.[4] Greater transparency helps paint a clearer picture for investors about what companies are doing on the ground.
The first stages of the ESG revolution led to an almost sevenfold jump in Apac’s ESG funds between 2014 and 2021, from USD $21.4 billion to $145bn.[5] That was of course still a very small proportion of investors’ overall capital, but represented a much faster expansion than that of non-ESG funds, which only tripled during the same period. Weak performance of ESG-focused portfolios, coupled with concerns about geopolitics and greenwashing, led to a 22 per cent drop in ESG funds in the two years that followed.
Chart 2: Growth in Apac's ESG funds stalled in 2022 and 2023
Source: Morningstar Direct, Fidelity International, September 2024. Note: Data includes both ETFs and mutual funds, covering seven markets, Australia, mainland China, Hong Kong, Japan, Singapore, South Korea, and Taiwan. ESG funds are defined as Morningstar Sustainable Funds.
Green gold
Despite the decline, we see strong growth potential for ESG investors in Asia over the long run. The region is home to the world’s leading manufacturers of electric vehicles, solar panels, and critical components of green technologies, with many high-emitting companies progressively replacing coal-fired power plants with clean energy sources. As investment in the energy transition builds and environmental awareness pushes changes in consumer behavior, avenues of growth available to these companies will multiply.
Meanwhile, substantive changes in corporate governance are underway in Asia. More effective board structures and greater diversity at the most senior levels will bolster oversight and protection of a broader group of stakeholders, including minority interests. We expect Asian companies to manage ESG risks better as a result - including a prioritisation of long-term over short-term targets. Those that do are more likely to create value for investors through resilient growth. And over the medium to long term, this should improve the risk- reward equation for ESG investors.
There is still a long road ahead for sustainable investing in Asia. The total size of associated assets is tiny compared to the entire fund universe in the region. And there remains plenty of room for Asian regulators to do more to weed out greenwashing. Young Asians for one are unlikely to stand for it. After all, there’s more to protecting the planet than old jeans and bubble tea.
[1] 68 per cent of respondents under 30, 70 per cent of respondents aged 30-44, and 62 per cent of respondents aged 45-69 say it’s important to act responsibly or sustainably as investors.
[2] The survey was conducted by YouGov in six markets in May 2024 and published in July. A total of 6,515 respondents, aged between 18 and 69, participated in the survey.
[4] More Singapore businesses will have to report sustainability information, starting with listed firms in 2025 - CNA (channelnewsasia.com)
Hong Kong Exchange to Require IFRS-based Climate Disclosure Beginning 2025 - ESG Today
[5] According to Morningstar Direct data.
