A higher percentage of investors in Asia (39%) state they have funds in their portfolios that can be categorized specifically as ethical or environmental, social and governance (ESG) funds, compared with less than a quarter (23%) of investors in Europe, according to a recent study.
Indonesia leads the Asia region, with 51% of investors holding ESG funds, finds AXA Investment Managers (AXA IM)’s ESG Investing: A Global Investor Study 2023. While at the other end of the scale, Hong Kong, which in spite of a 3%-plus increase, continues to lag behind the rest of the region with only 29% of investors holding ESG funds, except for dead-last Japan (20%).
Overall, investors in Asia generally have stronger expectations surrounding the performance of ESG funds, the study shares, although this has declined since 2021. Interestingly, investors in Japan and Singapore are among the least likely to expect an ESG fund to outperform the market, while those in Indonesia (48%) and Thailand (63%) are most positive on potential ESG fund performance.
Fewer non-ESG investors in Asia plan to invest in the sector in 2023, compared to 2021. That said, investors in Southeast Asia are particularly inclined to make future ESG investments, the study notes, with more than 65% of Filipino investors and 44% of Thai investors either very or fairly likely to add ESG investments into their portfolio in the future. While younger, non-ESG investors are also significantly more likely to be interested in adding an ESG investment to their portfolio in the future.
Overall, there has been a marked decline in the potential importance of ESG to non-investors. For current non-investors, who may invest in the future, ESG would only be an important factor in a minority of cases.
Scepticism around the performance of ESG investments is the top barrier to ESG investing, increasing since 2021 (35% in 2023 versus 27% in 2021). Specifically, there is also a lack of clarity over ESG funds being genuinely more sustainable. Across demographics, fewer individuals, the study points out, expect an ESG fund to outperform a non-ESG fund of the same risk level in 2023, in comparison with 2021 (41% in 2023 versus 51% in 2021 across Asia).
Mis-selling concerns have also crept up in Asia (77% in 2023 versus 71% in 2021).
Retail investor awareness
Across Asia, investors’ awareness and understanding of their ESG product holdings are on the decline, with only a third (33%) of investors who currently hold ESG funds in their portfolio feeling fully aware of the ESG aims and objectives of those funds. To compound this, levels of awareness have fallen, rather than improved, since 2021 (33% in 2023 versus 39% in 2021)
Furthermore, advised investors display no significantly improved understanding. Among investors who have had a conversation with their financial adviser about ESG or responsible investment, still only 28% feel fully aware of their ESG fund characteristics.
Hong Kong falls below the average level of Asian investor satisfaction with ESG conversations, with clear room for improvement.
Improved transparency
To increase the appeal of responsible and ethical investment in Asia, investors say they want to see improved transparency, though a longer tracker record and increased choice would also help increase attractiveness. The study’s findings suggest that more needs to be done so that investors are better engaged and informed, and while this should begin with product transparency, financial advisers also play a crucial role.
Overall, end investors across Europe and Asia had more ESG conversations with their advisers in 2023 than in 2021, though they often initiate the conversation. Moreover, investors in Singapore and Japan who have not had these conversations are especially likely to have valued this.
In Asia, investors are also more likely to say an investment provider is a source of information for investing (19%) than in Europe (7%), suggesting a clear opportunity for investment providers in the region to discuss ESG with their clients.
“Strengthening trust and confidence in ESG assets will prove challenging unless investors acquire a deeper comprehension of the diverse ESG products and solutions, their specific goals and an understanding of the underlying mechanisms,” explains Jane Wadia, AXA IM’s head of sustainability for core products and clients. “Clearer communication around responsible investing in general and ESG funds will help private individuals have a greater awareness of these investment choices.”
