Asia-Pacific ESG AUM hits US$93b in Q3; flows into China sustainability funds turn positive: report

ENVIRONMENTAL, social and governance (ESG) assets under management (AUM) in the Asia-Pacific hit US$93 billion as at end-September, with over 500 sustainability funds domiciled in the region and about 120 new funds launched this year.

Active funds continue to dominate this space, representing about 70 per cent of ESG AUM in the region, recent data from Morgan Stanley showed.

Overall, flows into sustainability funds - as defined by ratings agency Morningstar - which are domiciled in the Asia-Pacific (excluding China) were up 54 per cent to US$1.2 billion in October, from S$800 million a year ago.

This was driven primarily by flows into passive funds, which quadrupled year on year to US$700 million, representing 60 per cent of net flows in October.

Meanwhile, flows into sustainability funds domiciled in China turned positive at US$7.7 billion in Q3 - from net outflows of US$1.1 billion a quarter ago - thanks to a US$6 billion uptick in flows into active funds.

ESG AUM in China has also more than tripled year on year to US$49 billion in the third quarter.

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About 11 per cent of MSCI China constituents have committed to carbon reduction targets, albeit varying in terms of comprehensiveness, said Morgan Stanley in a report.

Stocks exposed to the climate-change theme in the Asia-Pacific had rallied about 60 per cent year to date.

While decarbonisation in the region remains a secular long-term theme, Morgan Stanley said "the peak in new policy catalysts may have already passed".

It prefers alternative environmental and social themes in the near term.