As more capital is directed towards realising global sustainable development goals (SDGs) and climate targets, the global sustainable fund segment has expanded exponentially.
Globally, the size of sustainable funds reached $2.7 trillion in 2021, an increase from $195 billion in 2010, with a compound annual growth rate (CAGR) of 27 percent.
From 1,304 funds in 2010 to 5,932 funds in 2021, the overall number of sustainable funds increased at a CAGR of 15 percent within the same period.
Similarly, sustainable investment has gained traction within the ASEAN region, and in line with the Roadmap for ASEAN Sustainable Capital Markets’ recommendation on catalysing products and enabling access to under-served areas, the ASEAN Sustainable and Responsible Fund Standards (ASEAN SRFS) has been developed by the ASEAN Capital Markets Forum (ACMF) to further expand the range of sustainable investments in ASEAN.
The ASEAN SRFS aims to provide the minimum disclosure and reporting requirements that can be consistently applied to collective investment schemes (CIS) that seek to qualify under the ASEAN SRFS, considering the rise of CIS with ESG investment focus and the need for a comparable, uniform and transparent disclosure of information to mitigate the risk of greenwashing and assist investors in making more informed investment decisions.
In light of this, the CIS or CIS operator, as the case may be, must demonstrate compliance with the ASEAN SRFS, which provides additional disclosure of information of the qualifying CIS.
Key features of the ASEAN SRFS
(a) Naming convention
The name of the qualifying CIS should accurately and proportionately reflect the sustainability features of the CIS, without overstating or overemphasising the sustainability features, or being misleading.
(b) Sustainable investment objectives and strategies
CIS should primarily invest in securities in accordance with sustainable investment objectives and strategies, with a minimum asset allocation of at least two thirds of its net asset value.
Examples of sustainability principles and investment strategies are provided in the ASEAN SRFS as guidance.
However, CIS merely adopting ESG integration strategy or negative screening strategy to seek financial returns without having a sustainable investment objective would not qualify under the ASEAN SRFS.
(c) Policies and procedures to ensure compliance
Disclosures on the processes in place to ensure CIS’ compliance with the ASEAN SRFS throughout its life cycle are also required under the ASEAN SRFS.
(d) Third party verification
Third party verification can be made on a voluntary basis, to verify that the CIS’ investments are aligned with its sustainable investment objectives and strategies.
(e) Periodic reporting
The CIS or CIS operator is required to provide relevant information pertaining to the CIS’s sustainable investment objectives and strategies and a review on its sustainability considerations in its interim or annual reports, where applicable, which should be published on a website.
In addition, CIS with impact investing strategies are also required to publish an impact report annually.
(f) Revocation of qualification
The CIS or CIS operator must provide relevant information, ie: material events that could affect the CIS’s compliance to the ASEAN SRFS, to the securities regulator in the respective ASEAN jurisdiction.
Once the CIS is found to be no longer compliant with the ASEAN SRFS, the securities regulator may revoke the qualification of the CIS.
Harnessing sustainability for future growth
Sustainable investments are essential to accelerate the global transition towards net zero.
By 2036, it is expected that the global sustainable investing market will grow to $160 trillion.
The asset and fund management sector in the ASEAN region must capitalise on these trends and step up efforts to provide investors with a greater selection of sustainable investment options.
This involves the emergence of more innovative sustainable fund products that cater to the needs and interests of investors.
As the sustainable fund universe evolves more rapidly, there are more demands for detailed and consistent disclosures, as well as a growing need for measures to mitigate concerns over greenwashing.
Hence, the ASEAN SRFS aims to provide the minimum baseline on the disclosures and reporting requirements of sustainable funds that are offered within the ASEAN region, which in turn, would enhance the consistency and transparency of information to investors.
The ASEAN SRFS can be accessed at https://www.theacmf.org/initiatives/sustainable-finance/asean-sustainable-and-responsible-fund-standards.