94Ha Viewpoint
The growth of sustainable investments in Asia has seen a slowdown in recent years, but with the deadline for net-zero emissions approaching and attitudes shifting across various sectors, the allure of sustainable investments is expected to continue increasing.
More and more young Asians are engaging in discussions on social media platforms about how to adopt more sustainable lifestyles. For example, in China, on the popular Douban social media platform, there is a discussion group called “Zero-Traces Lifestyle” that has attracted over 40,000 members sharing various techniques to reduce carbon footprints. These techniques include upcycling old denim jeans into stylish denim bags, using worms to turn kitchen waste into compost, and purchasing hand-cranked drink makers and reusable eco-friendly cups and straws.
Young people with environmental awareness not only seek to practice sustainability in their daily lives but also wish to incorporate sustainable considerations into their investments. According to a 2024 survey of investors in the Asia-Pacific region by Fidelity International, nearly 68% of young people under 30 in the region believe that as investors, they should take responsible or sustainable actions, slightly below the highest rate among the millennial generation (aged 30 to 44). Both age groups are convinced that investments can have a positive impact on the world.
While Asia’s rapid economic development has increased the regional carbon footprint, making it one of the largest sources of global emissions, investing in Asian companies actively promoting energy transition can make significant contributions to global climate change mitigation efforts.
Encouragingly, the regulatory environment is becoming more favorable for sustainable investments, providing these companies with more opportunities to access capital and ensuring they use these funds wisely. Additionally, more Environmental, Social, and Governance (ESG) disclosure frameworks are starting to replace voluntary disclosure mechanisms.
For instance, mainland China has established regulations requiring around 400 listed companies to publish sustainability reports starting from 2026. Listed companies in Singapore and Hong Kong are mandated to disclose climate-related information from 2025 onwards. Increased transparency helps investors better understand the impact companies have on local communities.
The first wave of the ESG revolution in the Asia-Pacific region has driven ESG fund assets to grow nearly sevenfold from 2014 to 2021, from $210 billion to $1.45 trillion. Despite representing a small percentage of overall capital in investment portfolios, ESG fund assets expanded much faster compared to non-ESG funds. However, the total size of ESG-focused funds decreased by 22% in the following two years due to weak portfolio performance and concerns in various sectors about geopolitical risks and greenwashing.
ESG investments in Asia have long-term potential, despite the recent decline. Several factors lead us to believe in the long-term development potential of ESG investments in Asia. The region is home to leading global manufacturers of electric vehicles, solar panels, and key components for green technologies. Many high-emission companies in the region are gradually transitioning to clean energy sources, and with increased investments in energy transition and growing environmental awareness driving consumer behavior changes, the growth potential for these companies is expected to multiply.
Moreover, significant changes are occurring in corporate governance in Asia. More efficient board structures and diverse senior leadership teams are expected to strengthen oversight and protection for a wide range of stakeholders, including minority group rights. We anticipate that Asian companies will be better equipped to manage ESG risks, prioritize long-term goals over short-term objectives, create value for investors through resilient growth, and improve the risk-return profile of ESG investments in the medium to long term.
While sustainable investments in Asia still have a long way to go, the total size of sustainable assets remains relatively small compared to the entire region’s funds. There is still room for improvement in Asia’s regulatory bodies to enhance information disclosure standards and eliminate greenwashing practices. It is an ongoing evolutionary process, but we believe Asia is ready to face these challenges.
[Author: Dananjay Padmanabhan, Fund Manager at Fidelity International]
