The Trending ESG Funds... 500 Billion Won Inflow This Year

[Asia Economy Reporter Park Jihwan] ESG (Environmental, Social, Governance) investment has become a major trend in the financial investment industry this year.

According to FnGuide on the 11th, as of the 8th, there are a total of 36 publicly offered funds classified as equity-type ESG funds launched domestically. The total assets under management amounted to 1.1789 trillion KRW. Of this, 523.3 billion KRW, nearly half of the total assets, increased since the beginning of the year.

This contrasts with the 1.2434 trillion KRW net outflow from domestic equity-type active funds since the start of the year, as public funds have been neglected due to the direct investment craze.

ESG investment refers to investing that considers not only a company's financial performance but also non-financial factors such as environmental protection, social responsibility, and proper governance when making investment decisions. Interest in the investment industry has increased as funds with high ESG ratings showed relatively superior performance last year.

The Morgan Stanley Capital International (MSCI) Developed Markets SRI Index, which is used as a benchmark for many global ESG funds, has outperformed the MSCI Developed Markets Standard Index annually since 2016. In particular, last year it outperformed by 3.98 percentage points.

The KRX ESG Social Responsibility Management Index (S), calculated by the Korea Exchange, also rose 81.83% over the past year (as of the 9th), significantly outperforming the KOSPI return of 73.31% during the same period.

However, there are also opinions warning about "greenwashing," where funds only claim to be ESG funds in name. As interest in ESG investment grows, some equity funds include ESG factors in their main investment strategies and simply change their names to disguise themselves as ESG funds.

This is also why the European Union (EU) introduced the Sustainable Finance Disclosure Regulation (SFDR) last month, which mandates European financial institutions to disclose sustainability information when reporting on investment and financial products.