Asia’s booming ESG funds will take off if China improves disclosure standards, say asset managers

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Funds managed with strategies linked to companies’ ESG performance doubled in Asia to US$25 billion last year from US$12 billion in 2019, according to JPMorgan

Engagement by foreign investors has already seen some Chinese firms enhance disclosures, while impending regulatory requirements would improve it further

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Better disclosure by mainland China-listed firms is key to attracting foreign investors in Asia’s ESG funds boom. Photo: Shutterstock Images

Eric Ng

Published: 2:00pm, 6 Jun 2021Updated: 9:52pm, 6 Jun 2021

Environment, social and governance disclosures by mainland China-listed companies have improved but remain short of the needs of international fund managers, who are increasingly pushed by asset owners to embed ESG considerations into investment decisions, according to asset managers.

Engagement by foreign investors has already seen some companies enhance disclosures, while impending regulatory requirements would improve it further, they said.

“There is still an emphasis on the part of many [mainland-listed] companies we speak to … around disclosing to the letter of the regulations,” said David Smith, senior investment director for Asian equities at Aberdeen Standard Investments, which manages over US$600 billion of assets.

“That said, we have had positive engagements through which we have helped companies move beyond the minimum requirements.”

While ESG investing has only gained traction in most parts of Asia in the past two years – compared to over a decade in Europe – Asia is seeing a boom in ESG funds which have outperformed standard index-linked funds. They are invested not only based on companies’ financial performance, but also ESG standards.

Funds managed with strategies linked to companies’ ESG performance doubled in Asia to US$25 billion last year from US$12 billion in 2019, according to JPMorgan.