Taiwan regulators are drafting new environmental, social and corporate governance (ESG) rules to prevent greenwashing – a move welcomed by locally based asset owners and fund managers, who are weighing up their investments into sustainable strategies.

The Financial Supervisory Commission’s (FSC) securities and futures bureau said last Wednesday (April 14) that it will issue a set of guidelines mandating that fund managers disclose their ESG investing processes, their methods of investing, and which international standards they have applied.

Full details have not been revealed yet, but from as early as July, fund managers may have to comply with a set of disclosure guidelines, said Chen-Shan Chang, director general of the bureau.

The island has been taking steps to reduce its carbon footprint and improve ESG implementation in the market. On Thursday (April 22), Taiwanese President Tsai Ing-wen, speaking at an Earth Day event in Taipei, said Taiwan has begun to assess how it can reach zero emissions by 2050.

Taiwan "cannot fall behind the international trend," she said.

Julian Liu, Yuanta Securities
 

In August last year, the FSC proposed a three-year roadmap to guide the industry through standardised ESG rules, which included plans to establish a public stewardship evaluation mechanism by 2023. Local regulator Taiwan Depository & Clearing Corporation also launched a dashboard in 2020 that gave market participants access to ESG rating information.

Julian Liu Tsung-Sheng, executive chairman of Yuanta Securities, one of the largest asset managers on the island, told AsianInvestor that investors, fund managers and regulators need to drive ESG standardisation through "real actions" instead of “simply taking advantage [of the ESG trend] for marketing purposes”.

“We’ve received more ESG requests on products launching from both institutional and retail clients in recent years,” he said, adding that ESG is no longer just a “marketing thing”.

Wing Chan, director of manager research practice from Morningstar echoed his view. Chan told AsianInvestor the latest announcement from Taiwan’s FSC is a welcome development after a similar initiative in 2019 by the Securities and Futures Commission in Hong Kong, which introduced a set of criteria for funds wishing to promote ESG-related mandates.

"Since Taiwan and Hong Kong are two of Asia’s largest open fund markets, the adoption of a similar approach should be beneficial for fund investors and asset managers," Chan said.

He added that fund investors would benefit from a consistent message and definition of ESG products, and that asset managers can benefit from similar disclosure requirements on their cross-border fund range.

RISING ESG INTEREST

Fund managers and asset owners in Taiwan have been increasingly interested in ESG.

On Monday (April 19), the island's Public Service Pension Fund (PSPF) announced bids for its "Global Quality ESG Indexed Equity" mandate, targeting to fund a total of $400 million to two asset managers. As of the end of March, it had $23.2 billion assets under management.

PSPF did not reply emailed questions from AsianInvestor on mandate details.

Cathay Life Insurance, the island’s largest insurer, signed the Taiwan Stewardship Principles for Institutional Investors issued by regulators in 2016. As of 2019, it had $178 billion total responsible investment assets under management and 99% of its mandate assets were managed by asset management companies that are either Principles for Responsible Investment (PRI) signatories or who have adhered to the government stewardship code. 

Cathay Life has a total of $244.3 billion of assets at the end of 2020. The insurer did not reply emailed questions from AsianInvestor on its latest ESG efforts.

A Fitch Ratings report published in February that gathered responses from 22 Taiwanese asset managers managing a total of NT$2.9 trillion ($100 billion) in assets also found that ESG had become more important among respondents.

About 15% of new funds launched in Taiwan last year had explicit ESG strategies, an increase from just 2% the year before (see graph below).

In addition, 90% of investment managers surveyed have or are planning to adopt a responsible investment policy, the report found. However, only about 25% offer ESG products. 

Alastair Sewell, head of fund and asset manager group for emerging markets and Asia Pacific at Fitch Ratings, told AsianInvestor in an emailed response to questions that new ESG guidelines will benefit investors but could also mean increased cost and risks.

"Meeting the required regulatory disclosure standards could increase costs for affected investment managers, and potentially increase regulatory or reputational risks if ESG funds do not meet current or emerging standards," he said.

"Nonetheless, those investment managers who are able to respond proactively to new and emerging regulatory standards in the ESG sector may be better competitively positioned to capitalise on the increasing investor demand for ESG investments."