ESG Funds Are the Trend... Entering a Full Growth Phase This Year

[Asia Economy Reporter Song Hwajeong] Environmental, Social, and Governance (ESG) funds are the trend. ESG funds, which emerged as the main investment assets last year, are expected to show significant growth this year.

According to Yuanta Securities on the 12th, global Socially Responsible Investment (SRI) funds saw a net inflow of $152.3 billion in the fourth quarter of last year, an 88% increase compared to the previous quarter. Of the net inflow, 80% was from Europe and 13.4% from the United States. ESG fund assets increased by 29% from the previous quarter to $1.652 trillion. With 196 new products launched, the total number of funds classified as socially responsible investment funds reached 4,135.

Researcher Kim Hujeong of Yuanta Securities said, "Interest in the environment, which became urgent due to COVID-19, is gaining momentum through government policies," adding, "Moreover, the interest of institutions and individuals in ESG is leading to the establishment of new funds." Governments worldwide are implementing active fiscal stimulus measures amid COVID-19 lockdowns. Government finances are actively supporting eco-friendly policies directly linked to human survival, which naturally translates into investment opportunities for ESG funds. The Biden administration's promotion of eco-friendly policies in the United States is also driving the development of ESG funds.

Socially responsible investment funds in Asia, excluding Japan, amount to $25 billion. Among these, equities account for $13.2 billion, representing 88% of the total funds. In 2020, China and Korea saw significant capital inflows among Asian countries, with China accounting for 60% of the capital inflow into Asia.

Researcher Kim explained, "Traditionally, socially responsible investments have been actively made mainly in developed countries such as Europe and the United States, and companies in developed countries receive higher ESG ratings than those in Asian countries," adding, "However, this paradoxically means that Asian companies have room for improvement in ESG ratings, which could represent another investment opportunity."

Last year, domestic active equity funds in Korea saw a decrease of KRW 5.9662 trillion in net assets. Representative style funds such as small and mid-cap funds and dividend stock funds experienced outflows of KRW 1.2 trillion and KRW 1.8 trillion, respectively. In contrast, funds flowed into socially responsible investment funds. Socially responsible investment funds saw an increase in net assets across various types, including domestic equity, overseas equity, and bond funds.

Researcher Kim said, "Looking at the recent six-month returns, domestic socially responsible investment funds often outperformed domestic active equity types, and overseas socially responsible investment funds also recorded higher returns than overseas equity types," adding, "Socially responsible investments, including ESG, appear to have entered a full-fledged growth phase both technically and socially."

This content was produced with the assistance of AI translation services.