More product launches based on environmental, social and governance (ESG) factors are likely in Taiwan this year, which could have ramifications for investment managers’ competitive positioning, says Fitch Ratings.
Around 15% of the new fund launches in Taiwan had explicit ESG strategies in 2020. ESG mutual fund and exchange-traded fund assets are still in their infancy, accounting for only around 2% of assets under management (AUM) locally.
However, this share was still the highest in Asia at end-3Q20, and last year’s trend suggests that ESG is gathering momentum as an investment theme.
Fitch’s 4Q20 survey of Taiwanese investment managers found an overwhelming majority consider ESG factors to be important. About 90% of respondents have or are planning to adopt a responsible investment policy. However, only about 25% offer ESG products.
In terms of ESG process, governance is the dominant factor in investment managers’ analysis. Fitch’s ESG Relevance Scores reveal that governance is typically the most important factor affecting credit ratings.
Regulation is, as yet, a limited driver of ESG adoption. However, regulators are taking steps to help further the market’s development. For example, the Taiwan Depository & Clearing Corporation (TDCC), the central securities depository, launched a dashboard in 2020 providing market participants with ready access to ESG rating information.
The adoption of ESG factors is rarely a material factor in Fitch’s fund credit-rating analysis. However, to the extent that ESG factors contribute to funds acquiring new or retaining existing AUM, ESG factors could become meaningful to fund ratings by reducing redemption risk and, thus, the need to sell securities. This could skew fund credit profiles.
