This year, market volatility, elevated rates and yields have been hurting investor sentiments, but these factors fail to hinder the progress of ESG (environmental, social and governance) investing in
According to data compiled by Morningstar, an investment research institution, the global mutual fund and ETF space recorded nearly USD3 billion of redemptions in the third quarter. On the contrary, global sustainable funds registered inflows of USD13.7 billion. Europe aside, Asia ex Japan was the other region that attracted inflows, which amounted to USD2 billion.
On the sustainability front, Asia may have had a slow start, but the region has seen steady growth in the past few years. China, for instance, ranks 17 out of 120 countries on the World Economic Forum's 2023 Energy Transition Index and is a new entrant in the top 20 countries, according to a report published in June by the World Economic Forum. According to the International Energy Agency, China added 160GW of renewable electricity capacity in 2022, and the country is set to account for nearly 55% of global additions of renewable power capacity this year and next.
Governments of various markets have been pumping resources to support sustainable developments, in turn, propping up related companies and their stocks or bonds. Investors have also come to the awareness that ESG investing could help portfolio diversification. As demand for ESG investing increases, we have also witnessed Asian regulators stepping on their gas pedals this year, to strengthen the transparency and standards of ESG ratings and data providers.
When managing and conducting ESG investments, asset managers often need to take reference to the data compiled by ESG ratings and product providers, who are not regulated institutions. It is, therefore, not unusual to see discrepancies across evaluation processes, standards and the extent of information disclosure. As a result of inconsistent standards and the potential conflicts of interest arising between data providers and firms being rated, asset managers and investors have yet to develop full confidence in the credibility of ESG ratings. This, in turn, has hampered the market's development.