Pension funds await Taiwan’s first ESG ETF

Taiwan’s pension funds are expected to be the biggest investors in soon-to-be-launched exchange-traded funds (ETFs) that incorporate environmental, social and governance (ESG) concepts.

With such products increasingly fashionable worldwide, public sector pension funds in Taiwan especially could be among the first to invest in these funds.

ESG ETFs will be most favoured by government pension funds as they are keenest to show that their investments benefit society at large, Donna Chen, founder and president of Taipei-based consultancy Keystone Intelligence, told AsianInvestor.

Yuanta Securities Investment Trust Company (SITC) won a mandate last month from Taiwan Index Plus and FTSE Russell to issue an ETF that tracks their FTSE4Good TIP Taiwan ESG Index -- the first ESG index in Taiwan that measures the performance of companies meeting globally recognised ESG standards.

The company is set to roll out the first-ever ESG ETF in Taiwan in the first half of 2019, Rebecca Chen, senior executive vice president of the Taiwan Stock Exchange Corporation, was quoted saying in the China Times on December 6. 

Yuanta SITC did not reply to AsianInvestor’s emailed query about when exactly the ESG ETF will be launched and the target fund size.

Some institutional-investor interest is already discernable.

He said the pension fund is positive about the launch of such products, although it still has to make further studies before deciding whether to invest in them.

In terms of passive ESG investing generally, not just using ETFs, there has already been some movement on the island. Taiwan’s Bureau of Labor Funds (BLF), for example, handed out a five-year NT$42 billion ($1.4 billion) passive mandate last year, which also tracks the FTSE4Good TIP Taiwan ESG Index..

“As a retirement pension fund, BLF’s ESG investment can lead the trend in the society and raise the awareness," Tsay Feng-Ching, director general of the pension fund, told AsianInvestor at the time.

Keystone's Chen added that most insurance companies invest in ETFs designed according to their criteria and those that track broad market indices, although they have also shown a growing interest to invest in ESG companies with their proprietary money.

Cathay Life, the biggest life insurer in Taiwan, said it always pays attention to ESG issues when evaluating equity investments. While declining to comment on individual products, a spokesman told AsianInvestor it is happy to increase investments in companies with good ESG practices.

GLOBAL TRENDS

The ESG market needs time to develop in Taiwan, Chen said, noting the 128 onshore ETFs listed on the island as of end November, with total assets under management of $21.3 billion but none that carry the concept of ESG.

Globally, ESG ETFs are gaining traction after the first dedicated ESG ETF, the iShares MSCI USA ESG Select ETF, was launched in 2002.

As of end-November, assets invested in ESG ETFs and exchange-traded products (ETPs) had increased 33.8% since the beginning of 2018, compared with the 4.6% growth seen for all ETFs or ETPs globally over the same period, according to ETF consultancy ETFGI.

Following net inflows of $856 million, the total assets invested in ESG ETFs/ETPs globally stood at $23.22 billion -- up 6.64% on the previous month.

There were 204 ESG-classified ETFs or ETPs, with 473 listings from 62 providers listed on 25 exchanges in 23 countries at the end of November, according to ETFGI.

FTSE Russell continues to see a growing demand, both in Asia and globally, for asset owners to integrate ESG considerations into their investment strategies. This trend started with active funds but now ESG integration into passive strategies is also gaining momentum, Amy Wong, head of business development for Greater China at FTSE Russell, told AsianInvestor.