Environmental, social and governance-orientated investment isn't yet a mature market in Asia, but figures show this approach reaps rewards, a report claims.

The ways that investors in Asia and other regions can follow through on their passion for sustainable investment are rising, although this way of putting money to work is still young in Asia, according to research from Cerulli Associates, the global research and consulting firm. 

While strides are being made in getting more Asian institutions to realize the value of socially responsible investing to both returns and sustainability, progress has been slower on the retail front, it said.

The growing number of sustainable funds in Asia ex-Japan signals a potential for retail SRI in the region, Cerulli said. The number of such funds grew by 15 per cent annually from 2014 to 2016 to reach 658 in 2016 - faster than the 11 per cent growth recorded between 2012 and 2014. (However, it is worth noting that the 2016 figure includes Shariah-compliant funds in its calculation of sustainable assets, Cerulli said.)

There is evidence, Cerulli said, that socially responsible/environmental, social, governance-based investment approaches reaps results in hard numbers. It noted that MSCI's Asia ESG universal index beat its Asia standard index in terms of five-year price performance. Several Asia-domiciled ethical funds achieved yearly returns of more than 30 per cent last year, Cerulli continued.

Other regions tend to be further down the track: the share of retail SRI assets from other regions are still small, although growing. In Canada, Europe, and the United States, this share stood at 26 per cent at the beginning of 2016 - up from 13 per cent in 2014, the report said, citing figures from the Global Sustainable Investment Alliance.

To illustrate how small in relative terms SRI is in Asia, Cerulli notes that there are no available environmental, social, and governance funds in Asia ex-Japan is still small relative to other regions. Indonesia, for example, has yet to launch an ESG mutual fund. 

“Even within the Islamic space, despite the launch of several global Shariah funds after previous investment restrictions were lifted, Indonesian fund managers told Cerulli that sales agents are not marketing these products aggressively, and that appetite is limited. If these managers see little point in launching new global Shariah funds anytime soon, there is little reason to expect them to develop ESG funds,” it said.