China’s sustainable funds post huge inflows amid push to meet carbon targets, Morningstar says

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Interest in sustainable investing is growing in China, as investors seek funds related to environmental, social and governance (ESG) factors amid Beijing’s push to meet its carbon goals, according to Morningstar.

Net inflows into sustainability-themed funds in the mainland grew to US$7.6 billion in the third quarter, reversing from a net outflow of US$928.9 million in the second quarter, according to the asset manager’s tally of 127 domestic funds with a strong focus on ESG factors.

“In 2021, investors have shown growing interest in ESG funds, particularly in renewable energy and low carbon products, as the Chinese government continues its efforts to meet commitments to hit peak emissions by 2030 and achieve carbon neutrality by 2060,” Verna Chen, a Shenzhen-based analyst in Morningstar’s manager research team, told the Post.

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Some 20 ESG funds were launched in China in the third quarter, out of 34 such funds in Asia ex-Japan. Most of the funds launched on the mainland focused on climate-related themes, in line with the government’s efforts to meet its carbon emissions reduction targets, according to Morningstar. This included the initiation of a national carbon trading market in July, which resulted in strong investor interest in new energy and low carbon products in the mainland, the research firm said.

“As one of the hottest themes this year, renewable energy stocks have surged since the second quarter of 2021, leading many funds investing in related areas to outperform the market, some of which have attracted significant inflows year to date,” said Chen.

Overall, assets under management of ESG funds in China reached US$47.5 billion in the third quarter, growing 33 per cent from the previous quarter.

Orient Secs Green Energy Car Allocation fund, for example, saw its assets under management increase to over 20 billion yuan (US$3.1 billion) as of September 30, a more than fourfold increase from the end of 2020, according to Chen.

“Many local fund companies see carbon neutrality as one of the long-term growth themes and therefore have launched or are planning to launch climate-aware funds to meet the growing demand,” Chen said.

Investors were increasingly seeing the benefits of integrating sustainable investing approaches into their portfolios, according to Swiss bank UBS’s Investor Sentiment Survey released at the end of October.

Over three quarters of investors expect sustainable investing returns to match or exceed traditional investing returns, according to the global survey of 3,004 investors and 1,202 business owners across 15 markets, including mainland China, Hong Kong, the US and the UK.

Nearly 70 per cent of investors in the Asia-Pacific see sustainable investing as a highly important part of their portfolio strategy, with half choosing climate change as the top sustainable investment theme.

“With climate change a top concern for investors, many will focus on the progress made at the UN Climate Change Conference and any agreed new measures,” said Tom Naratil, co-president of UBS Global Wealth Management in the report, referring to the ongoing COP26 climate talks being held in Glasgow, Scotland.

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