As global warming has deteriorated, the extreme climate has accelerated, and the COVID-19 pandemic has been raging over the past two years, corporations’ sustainable development has become even more significant. International research has shown that corporations that value the importance of ESG and sustainable development are equipped with more powerful resilience to withstand external shocks. As the financial sector is dominant in promoting a country’s sustainable development, an increasing number of international financial institutes have incorporated ESG principles into the criteria or weight distribution principles of their investment targets. It urges the invested companies to catch up with the trend of sustainable development. According to a survey of the Global Sustainable Investment Alliance, GSIA, the global sustainable investment capital reached USD 35.3 trillion in 2020, which is a 15% increase compared with the capital in 2018, and the percentage of sustainable investment accounted for almost 36% of the assets under management, AUM. As “The 2021 Taiwan Sustainable Investment Survey” has shown, Taiwan’s 2020 SRI investment capital was USD 600 billion, with 37% of AUM being sustainable investments. This ratio is slightly higher than the global average ratio in the survey of GSIA.
With the rapid development of global sustainable investment, global ESG-related financial instruments, especially ESG funds, have multiplied; global institutes’ statistics have shown the capital has exceeded USD 3 trillion. To ensure the sound development of sustainable investment, build market confidence, and exclude ESG fund misnomers and greenwash, the competent authorities in different countries have also started to formulate relevant regulations. Sustainable Finance Disclosure Regulation, SFDR, introduced by the European Union in March 2021, provides a universal ESG implementation disclosure and review standard. This creates rules for the financial market and exposes those greenwashed corporations and funds. The FSC, Taiwan’s competent authority, also released “Regulations Governing Examination and Supervision of ESG Related Thematic Securities Investment Trust Funds Disclosure By Securities Investment Trust Enterprises” and “Disclosure Rules for offshore ESG funds” last January and this January, respectively. ESG fund issuers are obliged by the regulations to set up and disclose investment objectives and measurement standards, investment strategies and methods, allocation of investment proportion, reference performance benchmark, exclusion policy, risk warnings, stewardship participation principle, and implementation.
Meanwhile, TDCC has also set up FUNDCLEAR, whose ESG fund area lists offshore and onshore ESG-themed funds in Taiwan. In addition to disclosing the items as the competent authority has required, the companies also need to offer issuance information and prospectus links to regular reports or documents to enhance the transparency and credibility of the ESG-themed funds. By the end of May, on FUNDCLEAR, 24 domestic sustainability-themed funds and 13 overseas ones had passed the examination and review, totaling 37 funds and USD 20.29 billion. This shows Taiwan serves as the third largest ESG fund market in Asia. As for examining sustainable investment strategies and methods of Taiwan’s onshore ESG funds, among the seven sustainable investment measures defined by GSIA (Global Sustainable Investment Alliance), Negative/Exclusionary screening, ESG integration, and Positive/Best-in-class screening are the three major ones. Among all the 24 funds, 19, 18, and 17 funds adopted the methods mentioned above, respectively. In addition, there are four ESG fund categories in terms of investment: ESG integration, environment, society, and corporate governance. Environment and ESG integration funds are the two majorities among all the categories, accounting for approximately one-third. By the end of this May, the sizes of the three leading domestic ESG funds had all exceeded NTD 10 billion, with Cathay MSCI Taiwan ESG Sustainability High Dividend Yield ETF topping the rank, its size reaching NTD 74.5 billion, accounting for 42% of the total ESG fund size in Taiwan (NTD 172.4 billion). CTBC Taiwan ESG Leading Semiconductor ETF ranks second (NTD 20.5 billion), followed by PineBridge Global ESG Quantitative Bond (NTD 16.5 billion). The total size of offshore ESG funds is approximately USD 15 billion, 2.5 times the size of the onshore ones. The first three leading ones are as follows: AB SICAV I-Sustainable Global Thematic (USD 3.45 billion), Amundi Funds - Global Ecology ESG (USD 3.37 billion), and NN (L) Global Sustainable Equity (USD 2.27 billion).
Sustainable investment in Taiwan and the world
According to GSIA’s latest survey, the 5th global sustainability survey (2020 Global Sustainable Investment Review, 2020 GSIR), Canada takes up 62%, the highest proportion of global sustainable investment AUM, followed by 42% from the European Union. From the perspective of investment strategy/method, the most commonly adopted sustainable investment strategy worldwide is ESG Integration, which totals USD 25 trillion and exceeds the second method, Negative/Exclusionary Screening (USD 15 trillion), for the first time. Shareholder Activism(exercise of voting rights) ranks third (USD 10 trillion). In addition, Taiwan’s efforts in promoting sustainable investment were reported in the 2020 GSIR report. The driving factors in promoting Taiwan’s policies and regulations were mentioned on page 26 of the report: the FSC’s Corporate Governance 3.0 encourages companies and investors to be actively involved in corporate governance. In terms of cross-industry cooperation, the report mentioned that the Life Insurance Association and the Bankers Association had put forward TCFD guidelines to assist companies in solving and integrating ESG issues.
To clarify and probe into the sustainable investment practice in Taiwan, show the world how Taiwan’s institutional investors emphasize and implement sustainable investment, enhance effective operations of a green and sustainable financial market in response to the FSC’s Green Finance Action Plan 2.0, guide companies and investors to value ESG issues through a financial mechanism, encourage investments and industries to pursue goals such as a virtuous circle of green and sustainable development, Cathay Financial Holdings sponsored and entrusted National Taipei University’s Corporate Sustainability Research Team to conduct questionnaire design and survey based on GSIA research methodology. With the support of the FSC, TWSE, three leading trade associations—life insurance, property insurance, and investment trust association— and four major government funds, the team carried out a survey exclusively on four major domestic funds and all the insurance and investment trust and consulting practitioners, totaling almost one hundred leading institutional investors. The following are excerpts and highlights from the second survey, the 2021 Taiwan Sustainable Investment Survey, and there are some suggestions listed as well:
I.Taiwan’s Sustainable Investment has reached USD 600 billion (approximately 1.8% of the global scale); this sustainable investment scale has gradually aligned with the global trend.
Taiwan’s sustainable investment assets are approximately USD 600 billion, taking up 37% of the researched institutes’ managed assets (USD 1.62 trillion). This shows a 33% growth compared to USD 479.3 billion in the first survey. This figure is close to 35.9%, the ratio of global sustainable investment to AUM in the global sustainable investment survey (2020 GSIR). Among all, sustainable investments dominated by insurance companies exceeded USD 510 billion, government funds at USD 41.3 billion, and trust and consulting at 44.8 billion. As for the growth rate, the investments dominated by the investment trust and consulting industry developed the fastest, with an annual growth rate of 109 %.
II.Positive sustainable investment method advances rapidly; there is still room for growth for sustainable investment in Taiwan’s stock market.
Among all the sustainable investment methods used by Taiwan’s institutional investors, Negative/Exclusionary Screening for stocks ranks first at USD 410 billion, a rise of 11 %, followed by ESG Integration at approximately USD 300 billion, a growth of 12%, with Sustainable Themed Investment remaining at third, exceeding USD 110 billion, an increase of 13%. Regarding the development scale, Impact Investing almost tripled and ranked first, followed by Positive/Best-in-class Screening at 33% and Corporate Engagement at 31%, ranking second and third, respectively. The other three methods, including Shareholder Action (exercising voting rights), also show a growth of over 25%. This indicates sustainable investment has gradually progressed in the direction of positivity. From the perspective of global trends, GSIR has shown that ESG Integration has become the sustainable investment method that most investors use. It has overtaken Negative/Exclusionary Screening for the first time, which has topped for years. Sustainability-themed investing has become the method that grows the fastest. These two methods mentioned above are the second and third most widely adopted by Taiwan’s institutional investors. This again demonstrates Taiwan has gradually aligned with the global investment trends. Regarding Corporate Engagement, although this method has shown a rapid growth rate, it only accounts for 4% of the total sustainable investment. When investing, Taiwan’s institutional investors are advised to consider Corporate Engagement further to wield institutional investors’ influence. Moreover, Taiwan’s sustainable investment in the local stock market accounts for 5.87% of total AUM; it is expected that the ratio can continue increasing to exert positive influences on the domestic capital market.
III.Institutional investors have gradually taken climate change more seriously and exerted influence.
According to a survey on the excluded targets ruled out by institutional investors through the Exclusionary Screening method, the number of institutions that excluded coal combustion and palm oil industries has increased compared with last year. The number of institutions that excluded coal combustion industries went from 3 last year to 8 this year. The number of institutions excluding palm oil industries went from “not excluded” the previous year to 3 this year. This has shown that climate change issues such as burning coal and forest conservation have been recognized and valued. Green bonds constitute the majority of sustainability-themed investing, accounting for 63%, a 20% growth. What follows next is renewable energy stocks, making up 18% and showing a massive 132% growth. Besides, impact investing has nearly tripled, showing social and environmental aspects have increasingly drawn more attention.
IV.Investors aged 30-60 pay the most attention to ESG financial instruments, with the proportions of both genders exceeding 80%.
Regarding consumer research, natural person investors’ attention to ESG financial instruments varies in each age group. Regarding ESG-related financial instruments, according to research on the ratios of each age group’s “intense attention” or “high interest,” those who are under 30 account for 67%, with ages 30-45 at 86%, 46-60 at 80%, and over 60 years old at 58%. At the highest level, investors aged 30-60, especially those 30-45 years old, show greater overall attention to ESG instruments compared with other age groups. As for gender, the proportion of males who pay intense attention to ESG-related financial instruments stands at 23%, and those who are interested make up 59%. The percentage of females that pay close intention to ESG-related financial instruments is 32%, and those who are interested constitute 53%. This shows that ESG-related financial instruments draw considerable attention regardless of gender.
It can be concluded that ESG will still simmer, and the quantity and quality of Taiwan’s sustainable investment will gradually align with those of the world. Compared with the global sustainable investment amount released by GSIR, Taiwan’s sustainable investment amount accounts for approximately 1.8% of the global capital. Following the launch of Corporate Governance 3.0, and Green Finance Action Plan 2.0, the FSC released the three-year-long Transition Strategies of Sustainable Development for Securities and Futures Sectors this March. Under relevant policies, such as TCFD guidelines announced by Life Insurance Association and the Bankers Association, and the global ESG trend, it is believed that Taiwan’s sustainable investment will gain more momentum and entirely link up with the world.
