China Could Be the Next Leader of ESG Investments in Asia | ETF Trends

In a bid to combat its pollution problems, China has been aggressively pushing into clean energy technologies, and the shift has paid off. The emerging economy is set to post the fastest growth in Asia for environmental, social, and governance investments after the country raised exchange traded fund assets 18-fold in the past two years.

China’s move toward renewable energy and electric vehicles will attract more fund flows into ESG-related ETFs, contributing to a 20% growth in assets across Asia this year, according to Bloomberg.

“We are seeing a surge there,” Bloomberg Intelligence analyst Esther Tsang said. “China is going to dominate.”

Despite the phenomenal asset growth in the past two years, China only makes up for a little over 10% of Asian ESG ETF assets under management. Japan maintains its lead of the group, accounting for 80% of the $40 billion in ESG funds that trade on Asian exchanges.

Asia still falls behind North America and Europe when it comes to ESG assets, making up less than a fifth of the $218 billion in global ETFs across this sector, according to Bloomberg Intelligence estimates from Tsang and Adeline Diab.

Amy Lo, co-head of Asia-Pacific wealth at UBS Group AG in Hong Kong, argued that the strong returns, along with the increased demand to build a more resilient portfolio in face of changing risks, are attracting more investors to the sector across Asia. The Swiss bank’s surveys revealed that three-quarters of family offices are making some sustainable investments.

“ESG has become increasingly compelling for investors,” Lo said at the Asian Financial Forum. “This is a real game changer.”

ESG investments have really taken off over the past year, attracting billions of dollars in new investments as investors reassess global market risks and try to position themselves in investments that mitigate or at least address growing risks like climate change.

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