Funds Flowing into ESG Funds... 277% Increase in One Year

[Asia Economy Reporter Hwang Junho] ESG (Environmental, Social, Governance) funds are showing rapid growth. Following the global market, interest in ESG is rising in South Korea as well, establishing it as a solid investment trend. Various ESG products, including exchange-traded funds (ETFs), are expected to be launched, and this trend is anticipated to continue.

According to Shin Young Securities on the 26th, as of the 24th, the size of domestic equity-type ESG funds was recorded at 1.0485 trillion KRW based on assets under management, a 277% increase compared to the previous year. Since the beginning of this year alone, 800 billion KRW has flowed in. The net asset size also increased by about 1.6 trillion KRW since March 11 of last year, when the global asset market sharply declined due to COVID-19, reaching 1.8717 trillion KRW.

ESG refers to non-financial factors such as considering the environment and society in corporate activities and establishing reasonable governance structures. Within companies, ESG investment strategies emerged as a pursuit of social values that maximize the interests of not only shareholders but all stakeholders, leading to the creation of related financial investment products.

Among ESG products, passive strategy ESG funds that track ESG indices, such as ETFs, have seen a significant increase in assets under management. Passive strategy ESG funds grew by about 389% compared to last year. The proportion of passive strategy ESG funds within domestic equity-type ESG funds increased from 28% at the beginning of last year to 35%.

The ESG market in South Korea is gradually expanding following the global market. According to global fund rating agency Morningstar, the global ESG fund size reached a record high of $1.9845 trillion as of the end of the first quarter. This represents a 20.1% increase from the end of last year and a 137.0% increase compared to the same period last year.

The expansion of the ESG market is expected to continue. Domestic asset management companies are actively improving their structures toward ESG. Shinhan Asset Management recently published an ESG blueprint outlining its vision for ESG investment. According to the blueprint, starting at the end of this month, the criterion of holding more than 70% of ESG-rated BB stocks, currently applied only to the Shinhan Beautiful SRI Green New Deal Fund, will be applied to general public equity funds. Hanwha Asset Management has appointed an outside director as the ESG chairman and will release its first ESG responsible investment report next month. This report will present the concept of ESG, the ESG investment process, and evaluation methods. Samsung Asset Management joined the climate-related financial disclosure task force last month and currently manages a total of nine ESG-related public funds, with investments totaling about 2.4 trillion KRW.

Park Taehyung, Chief Investment Officer (CIO) of Shinhan Asset Management, explained, "ESG investment should not be seen as investing only in good companies. The investment philosophy should be based on the idea that investing in companies that are thoroughly prepared for changing environmental and social standards can improve returns and manage risks." For example, he suggested, "Even steel, cement, and chemical companies that emit a lot of carbon can achieve better returns if they devise and implement solutions."

Oh Kwangyoung, a researcher at Shin Young Securities Research Center, forecasted, "With various ESG ETFs and index funds expected to be launched in the future, the proportion of passive strategy ESG funds will further expand."

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