With responsible investment gradually gaining recognition in Asia, Polaris Securities Investment Trust Company is set to launch the first environmental, social and governance (ESG) fund for Taiwan's retail market.
The Emerging Markets ESG Strategy Securities Investment Trust Fund will IPO from August 29 to September 6 with a subscription limit of NT$10 billion. It will invest in companies that achieve sustainable growth in line with the concepts of social equity, healthy life, sustainable infrastructure development, environmental protection and clean and efficient energy.
The product is Polaris Site’s fourth overseas equity fund and is the Taipei-based company's priority for the second half of 2011, says chief executive Julian Liu.
Outlining the investment strategy, he says: “We will firstly choose companies with sound fundamentals, then look into their corporate governance and pay attention to whether they have conducted good deeds to protect the environment.”
The fund will invest in 40 to 60 stocks, selected from the 800 constituent stocks of the MSCI Emerging Markets index and 400 investible stocks outside the coverage of the index.
Lai Yingliang, who will manage the fund, will choose companies that spend a certain percentage of revenue on addressing environmental and social issues and also achieve good corporate governance.
“Externally, we will assess the relationship between the company and its stakeholders, such as employees, suppliers, customers and communities," she says. "Internally, we will add more points if the company has a board of directors separate from the management.”
The fund covers 20 markets, with Brazil accounting for 26% of the total equity positions, China (H-shares and red-chips listed in Hong Kong) and Korea more than 10% respectively, and South Africa about 9%.
Lai explains the overweighting in Brazil: “The listing rules of the Novo Mercado [stock market] in Brazil are stricter in terms of corporate governance, which enable us to find more target companies.”
In South Africa, the Johannesburg Stock Exchange launched the FTSE/JSE Socially Responsible Investment (SRI) Index in 2004. The index, with 51 constituents, posted an annualised return of 20% between May 31, 2004 and May 31 this year.
Polaris leverages the investment capability of US bank Wells Fargo, its minority shareholder, to manage the fund, and Wells Capital acts as an adviser on the fund.
The value of ESG and corporate social responsibility has gone beyond the scope of ethics and gained recognition from investors in capital markets, particularly in Europe. And the trend is starting to catch on in Asia.
Several ESG/SRI mutual funds launched in mainland China have been successful both in terms of size and performance. China Universal FMC’s CSR fund raised Rmb5.6 billion during its IPO period, making it the largest mutual fund launch this year in China. Aegon Industrial FMC’s CSR equity fund, incepted on April 30, 2008, has achieved a cumulative return of 57% so far.
Meanwhile, fund managers such as BlackRock, BNP Paribas, First State and HSBC have been boosting their corporate governance/ESG teams in Asia in the past year or two.