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Why Asia holds the key to unlocking a green future

We look at 3 funds offering sustainable investment opportunities in Asia.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Global warming is likely to push average temperatures 1.5°C higher than pre-industrial times within the next few decades.

While 1.5°C might not sound like much, the impact on life on earth would be catastrophic.

It would see the loss of many animal, insect, and plant species. We’d also lose up to 90% of the world’s coral reefs. There would be more severe and regular flooding and droughts. And it’s more than likely there would be no ice in the Arctic over summer.

To put it simply, the world would be very different to how we know it today.

And we’re already seeing the effects. Just look at the deadly heatwave in India and Pakistan where people are facing daily temperatures of over 40°C.

Climate change is deeply intertwined with global inequalities, and some of the countries least responsible are suffering the most.

Asia is a key contributor to global warming

Global warming is caused by the emission of greenhouse gases, and China is the biggest emitter. In 2019 they emitted more than the entire developed world combined.

The largest source of greenhouse gas emissions is from burning fossil fuels, in particular coal. And 90% of new coal power plants are based in Asia.

Indonesia, for example, is the world’s top thermal coal exporter. They’ve committed to phase out coal by 2056. However, the war in Ukraine is causing rising energy prices and increased coal use. This opportunity for coal exporters to cash in presents another challenge to the green transition.

Without reducing emissions in Asia, we have no hope of limiting global warming. The key will be the deployment of cleaner energy, more sustainable construction practices, electric vehicles and addressing the agriculture industry.

The good news for investors is that the infrastructure is largely already in place, and so is the ambition.

China, for example, is leading in renewable energy production and is the largest producer of hydroelectricity. The nation has pledged to reduce emissions to net zero by 2060.

In this article, we look at three funds focused on sustainability in Asia and aiming to accelerate the green transition.

Investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

These funds invest in emerging markets which adds risk. Emerging markets are generally less well regulated than the UK and it can sometimes be difficult to buy and sell investments in these areas. Political and economic instability are more likely, making these funds higher risk than those investing in more regulated and developed markets.

These funds also invest in smaller companies, which are more volatile and sometimes more difficult to trade than larger companies, making them higher risk.

FSSA Greater China Growth Fund

Martin Lau, lead manager of the FSSA Greater China Growth fund, invests in high-quality companies with strong cash flows, an ability to keep costs under control and high standards of company management. This fund focuses on the Greater China region, and invests in companies based in, or that carry out most of their business in, China, Hong Kong or Taiwan.

The team’s investment philosophy is founded on stewardship. When they make an investment, they see themselves as part owners of the business. They engage with companies to make sure they’re run in a way that’ll benefit all shareholders, and also consider environmental, labour and other governance issues.

One of the fund’s holdings, EEN Energy, is a privately owned gas distributor. It’s proactively reducing emissions and providing alternative low-carbon solutions. For example, they’ve recently switched their transportation fleet to only use clean fuel vehicles.

Lau recently engaged with the company on various environmental, social and governance (ESG) issues, like improving data disclosure and setting firmer ESG targets. EEN has been receptive and understand they need to transition away from natural gas. Major areas of focus include energy storage, carbon capture, hydrogen energy, geothermal energy, and converting biomass waste into fuels.

More about the FSSA Greater China Growth fund, including charges

FSSA Greater China Growth Fund Key Investor Information

Stewart Investors Indian Subcontinent Sustainability Fund

Stewardship and sustainability are a core part of the Stewart Investors Indian Subcontinent Sustainability fund’s investment strategy. The fund’s managers, Sashi Reddy and David Gait, invest across India, Pakistan, Sri Lanka and Bangladesh.

The fund focuses on companies they believe could benefit from, and contribute to, the sustainable development of the countries they’re based in.

One of the fund’s largest investments is Mahindra & Mahindra, an Indian conglomerate. The real estate and infrastructure development arm of the group has been recognised as a climate change leader in India.

The company develops, and supports research on, green buildings tailored to climatic conditions in India. It does this through climate-responsive design, green architecture, and environment-friendly building materials, sourced through a sustainable supply chain.

More about the Stewart Investors Indian Subcontinent Sustainability fund, including charges

Stewart Investors Indian Subcontinent Sustainability Fund Key Investor Information

Fidelity Sustainable Asia Equity Fund

The Fidelity Sustainable Asia Equity fund invests across Asia (excluding Japan). Manager Dhananjay Phadnis invests at least 70% of the fund in companies that are highly-rated on ESG measures. The rest is invested in companies that might not score highly today, but are on an improving trajectory.

The manager also avoids companies some might consider unethical, like tobacco companies, oil & gas extractors and makers of controversial weapons.

Engagement is a key part of Phadnis’ approach. He believes it’s the most effective way to influence a company’s behaviour and improve investor outcomes.

The manager recently engaged with a bank they hold that’s made progress on climate financing and improving the transparency of their emissions reporting. Although the bank’s targeting a complete phase out of coal lending by 2037, they’d like to see the company bring forward its commitment and will continue to press for more progress.

This fund has the flexibility to invest in derivatives, which adds risk.

More about the Fidelity Sustainable Asia Equity fund, including charges

Fidelity Sustainable Asia Equity Fund Key Investor Information

This isn’t personal advice. If you’re not sure what’s right for your circumstances, ask for financial advice. Remember all investments and any income they produce can fall as well as rise in value, so you could get back less than you invest.

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    Our fund research is for investors who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

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    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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