Melissa Brown, Executive Director of ASRIA, says it’s still early days in Asia for such innovative investment products.
“In markets like Japan, oftentimes one firm will launch one product and will do better than expected. And then you’ll see two or three clones that are able to go to market pretty quickly. We’re seeing this in Korea, too,” says Brown.
“In Southeast Asia,” she says, “Thailand is taking the lead… But the problem in markets like Thailand and the Philippines is that neither one is sophisticated enough for these type of investment products. They’re kind of a punters’ market still.”
Kenneth Koh, Head of Research (Asia ex-Japan) at Lipper, says there are two questions that need answering to gauge the success of SRI funds: do they ultimately make money, and do they really have a viable proposition?
“If you look at the universe of products, a subset of SRI funds can only be a smaller part of the pie,” says Koh. “That would mean that fund managers or potential investors would have a smaller pie.”
In the case of green funds, the take-up will also be too focused as they become more specialized. Koh continues: “All things being equal, and from a pure investment perspective, these might not necessarily bring the outperformance we’d like. If they want to be strict and deliver what they’re supposed to, then you’re talking about additional monitoring costs.”
In short, most analysts do not expect funds like Green Planet to have big returns because of the nature of the fund – environmentally friendly companies and their products come at a higher cost and that eats into the bottom line. This has seen a lack of interest in these kinds of funds.
“People have been a bit indifferent so far,” CAAM’s Chan says. “But we’re looking at a long-term investment horizon and encourage investors to hold on for some years.”
In Hong Kong, the government faces continuous criticism over air quality, no thanks to emissions from power plants and factories within the territory and across the border in the Mainland. Chan says the problem for green funds in Hong Kong, and for SRI funds in general, is that success weighs heavily on the target market’s investment culture.
“But nowadays they’re getting more awareness. In Hong Kong, the government has been encouraging regarding campaigns on environmental awareness. It’s still the beginning but we expect to see substantial improvement in about one or two years,” Chan says.
Ultimately the people who invest in SRIs are not necessarily out to make huge profits. They are out to save the world. And if in the process, they can make a little money, why not?
Send us your questions and comments to us at email@example.com. We will answer as many of your e-mails as possible on ‘CNBC’s Cash Flow’ airing on Monday, May 21, 10 am to 12 noon Hong Kong/Singapore time.