Taiwan leads Asia in share of ESG assets as dearth of options at home drive funds offshore in search of green energy investments
- Taiwanese investors held more ESG assets as a total share of assets under management than any Asian economy in the third quarter of last year
- Although socially responsible investing is taking off, Taiwan faces a number of hurdles – chief among them is a lack of established domestic ESG funds
A wave of environmental, social and governance (ESG) investment fervour is sweeping Taiwan, turning the island into a leader in Asia as the market for sustainable investing takes off.
Taiwanese investors held more ESG mutual fund and exchange traded fund assets as a total share of assets under management than any Asian economy in the third quarter of last year, Fitch Ratings estimated in February.
Though the range of Taiwanese ESG funds is still limited, the amount flowing into sustainable and ethical assets has ballooned from NT$31.2 billion (US$1 billion) in 2018, to NT$113.8 billion in 2019 and NT$211.4 billion last year, according to data from Fitch and Lipper for Investment Management.
“I would say in Taiwan the fund managers or the high-net-worth investors have a relatively high awareness or appreciation in ESG,” Yeung said. “The beauty of ESG is you can be a responsible investor and still expect a good return.”
Some US$38 trillion in ESG assets were under management globally in 2019, with Europe leading the way, analysis firm Research and Markets said in January. Europe’s market is maturing, the firm said, and ESG will eventually account for a “major share” of assets under management worldwide.
Alastair Sewell, head of Fitch’s fund and asset manager group covering Asia, said ESG investing in Taiwan really started to pick up two years ago as funds introduced more sustainable products and investment vehicles worldwide.
Taiwanese officials have accelerated the trend by pushing major domestic investors to park money in ESG assets. Last year, the Taiwan Depository & Clearing Corporation, for example, started a service that gives market participants quick access to ESG asset rating information.
Separately, the government encourages investment in solar, wind and other renewable energy projects as the island moves towards its goal of generating 20 per cent of all electricity from renewable sources by 2025. Taiwan’s top financial regulator, the Financial Supervisory Commission, is one of the most vocal proponents of green energy investments.
Among the ESG investment pioneers in Asia are insurers like Taiwanese firm Cathay Life Insurance, which made NT$5.4 trillion in “responsible” investments in 2019, the first year when it began publicising figures.
By 2015, the company was already so entrenched in socially responsible investing it was telling investees how to behave.
The insurer, which has total investable assets of NT$6.3 trillion (US$220.7 billion), advises companies and fund managers on how to maximise the performance of assets linked to ESG criteria, as well as reduce risk. Clients then invest in everything from green bonds to solar power plants with an eye on how their money could have the best social or environmental outcome.
Other Taiwanese insurers are piling into ESG investing, too. Cathay Life’s crosstown rival Taiwan Life Insurance told the local stock exchange in August last year it had invested NT$500 million in the domestic wind power firm Leewei Wind Energy.
Kelvin Kwok, a Hong Kong-based analyst with Moody’s Investors Service, said insurers have “active dialogue” with whoever is investing their money.
In Taiwan, the government is pursuing a rapid carbon transition to renewable energy sources, which “means investment opportunities”, he added.
A spokesman for Cathay said the insurer was eyeing more ESG deals in the future as efforts to tackle climate change sped up around the world.
“As countries and large companies successively announce the ambitious goal of net zero carbon emissions, this transformation trend is bound to have a significant impact on the business models of all companies and will also give rise to many investments,” said the spokesman.
Still, ESG investing in Taiwan faces a number of hurdles. Chief among them is a lack of domestic funds with widely recognized ESG labels, according to analysts.
Though the island has the largest share of ESG funds in any Asian market, just 2 per cent of total industry assets in Taiwan are dubbed ESG, Fitch Ratings said.
Taiwan regulations encourage institutions, particularly sovereign wealth funds, to invest at home and limit the amount of foreign exposure in their portfolios.
Last year, 15 per cent of Taiwan’s new fund launches had explicit ESG strategies, a “significant” increase over prior years, Fitch said.
The number of specific ESG funds on the self-ruled has jumped from zero in 2018 to 11 last year, data from Fitch and Lipper for Investment Management showed. However, this figure was still small compared to the total number of traditional funds established over the same period.
“The range of ESG funds in Taiwan remains relatively narrow at present,” Sewell said. “However, investment managers have stated their intention to launch more funds.
“Fitch Ratings expects that asset growth in ESG funds will continue in Taiwan and will likely be accompanied by a diversification of the types of ESG funds offered.”