Despite the uncertainty caused by Covid-19, ESG (environmental, social and governance) investing, particularly ETFs (exchange-traded funds), will continue to remain attractive. That's according to a panel of experts who spoke at a webinar hosted by The Asset Events+ Taiwan Investment Series part two on Sustaining ESG for ETFs.
“Given market volatility with Covid-19, we’ve seen some strong performance from ESG strategies. The movement away from fossil fuel towards low carbon has also added to the strength of strategies that pursue those kinds of objectives," explains Helena Fung, head of sustainable investment, Asia Pacific at FTSE Russell. “The evidence is all there that we should have good performance hopefully from the ETFs in the ESG space."
As one of the leading economies for developing ETFs in Asia, Taiwan looks to benefit from such a positive market sentiment as the island is also ramping up efforts to encourage ESG practices. In the past 12 months for example, Taiwan launched it's first ESG ETF and also the region's first ESG futures contract.
“I see the demand for ESG in the Taiwan market increasing, especially our Labour Pension Fund, which has an ESG investment portfolio of around US$3 billion, tracking the TWSE RA Taiwan Employment Creation 99 Index, Taiwan High Compensation 100 Index, and FTSE4Good TIP Taiwan ESG Index,” shares Pony Bo-Li Huang, senior vice-president and head of corporate governance department at the Taiwan Stock Exchange. “I think institutional investors believe ESG investing is more important and therefore they put their money in this area.”
In terms of ESG index construction, there has been several different approaches firms have been taking. "Initially, a lot of the ESG index solutions that clients have requested from us were really about very simple screenings, avoiding exposure to specific factors and also avoiding exposure to companies with bad ESG ratings or reputation,” recalls Randolf Tantzscher, managing director – indices, Asia Pacific at IHS Markit. “We are seeing more thematic ESG topics like climate change, green bonds, carbon, that have come up over the last couple of years.”
The drive to incorporate ESG practices is something that all stakeholders are keen to look at as companies hope to attract a wide set of investors. “Investors always seek to find a way to invest in companies with better performance and acceptable risks. ESG products can fit their requirements," says Janice C. Hwang, corporate social responsibility service manager at Deloitte. “Some of my clients are asking us to provide advisory for their investment strategies especially in establishing an ESG investing strategy or helping them develop some ways to do risk assessment within their portfolio looking to find whether there are significant ESG risks."
In the past decade to 2019 the number of ESG ETFs has jumped by nearly 600%, with 75% of the ESG funds launched just in the past four years. While challenges do exist in the ESG ETF space particularly when it comes to obtaining reliable data, this investment strategy will no doubt gain additional traction, as investors become more aware of the impact of their decisions to the real economy.
For more information about the virtual event hosted by The Asset Events+ please go here.