Navigating Climate Opportunities in APAC Transition Funds
- We analyzed transition funds in Singapore, Hong Kong and Australia and found that portfolio construction, climate-related risk exposures and financial performance varied significantly by transition theme.
- Most funds exhibited lower transition risk than the MSCI ACWI Investable Market Index under our Climate Value-at-Risk model, as of May 2025, while 65% reduced their Implied Temperature Rise by an average of 0.7°C since May 2023.
- As the transition-funds market grows, integrating deeper climate insights may become crucial for institutional investors to assess the different roles transition products can play in portfolios and to capture long-term opportunities.
The low-carbon transition is a growing investment theme, particularly in Asia, where energy consumption is nearing the level of the rest of the world combined, as highlighted in MSCI’s Investment Trends in Focus for 2025.1 To help institutional investors assess and build transition-ready portfolios, we analyzed the transition themes, climate-related risk exposures and financial opportunities of public-market transition funds across three developed markets in APAC — Singapore, Hong Kong and Australia.
We identified 24 transition-labeled funds available for sale in these markets, with USD 6.8 billion in assets, as of May 5, 2025.2 Half of these funds launched in the past three years, signaling a growing appetite to build climate-related products. Most were classified as Article 8 (42%) and 9 (25%) funds under the EU’s Sustainable Finance Disclosure Regulation, highlighting how European frameworks may influence product standards for APAC investors. Five transition funds also rebranded following the European Securities and Markets Authority’s fund-naming guidelines, such as replacing sustainability-related terms with “transition.”3
Transition funds come in different flavors, as shown in their divergent 2024 performance. We categorized the funds in our analysis by transition theme, including a generalist category for those without a specific focus. Broad-based transition strategies — such as generalist and climate-transition funds — generally outperformed more narrowly focused strategies, such as natural resources and energy-transition funds. The overall median fund performance was positive in four of the past five calendar years (ranging from 4% to 10%), with performance leadership rotating among different transition themes. In terms of style factors, 60% of equity funds had a core approach, offering blended exposure to value and growth, while one-third focused solely on growth.
Data as of May 9, 2025. Based on 22 transition funds with available data. We identified transition-theme categories based on qualitative assessments such as fund names, investment focus and sector analysis. Performance data was unavailable for some transition funds, including infrastructure-themed funds. GMO Climate Change Transition Investment Fund had meaningful allocations to clean energy and tech companies, which impacted 2024 returns. Sustainable investments (%) was based on MSCI’s methodology for sustainable investments, under SFDR Article 2(17). Source: MSCI ESG Research
Equity products comprised nearly two-thirds of the transition funds we identified and over 90% of assets. Allocations to developed markets dominated (91%). The limited exposure to APAC (6%) suggests regional transition-finance initiatives may not yet have translated into domestic public-market investments. Only three funds in our analysis had a regional APAC focus.4 Climate and generalist transition funds held broad-based portfolios, with sector weights close to those of the MSCI ACWI Investable Market Index (IMI). In contrast, the energy-transition category of funds was generally overweight information technology, industrial and utility companies, while natural-resources funds focused on exposure to critical metals in the materials sector.5 These distinct themes highlight the different roles that transition funds can play within portfolios and the importance of fund design and portfolio construction.
Data as of May 9, 2025. Based on 22 funds with data availability. Source: MSCI ESG Research
Most transition funds we identified were resilient under stress-tested climate-transition scenarios, based on MSCI’s Climate Value-at-Risk (CVaR) model. According to the model, over half of these funds faced lower transitional risk than the MSCI ACWI IMI under 2°C and 3°C transition pathways.6 Despite the short-term performance challenges highlighted above, some energy-transition funds showed strong upside potential with positive transitional CVaR results, suggesting tech-driven financial opportunities may offset policy-related risks. These findings indicate that climate-scenario analysis may help investors position themselves for long-term growth.
Data as of May 9, 2025. Based on 20 funds with available data in MSCI’s coverage universe. Funds’ transitional CVaR measures the potential financial impact of climate-related policy risks and opportunities on investment portfolios, expressed as a percentage of the fund's market value under each scenario. This metric accounts for both downward movements driven by policy risks and upward movements arising from technology opportunities. The transition scenarios shown are based on a survey conducted by MSCI Sustainability Institute in 2024, where investor respondents on average expected a global temperature rise of 2.8°C above preindustrial levels this century. Source: MSCI ESG Research
Climate metrics can also be used to identify and measure decarbonization trajectories: 80% of transition funds had an MSCI Implied Temperature Rise (ITR)7 above 2.0°C and 54% had high carbon-emissions intensity, consistent with decarbonizing emissions-intensive sectors.8 Since May 2023, we found 65% of these funds in MSCI’s coverage reduced their ITR by an average of 0.7°C.9 Energy-transition funds had the highest share of holdings (up to 70%) with emissions-reduction targets approved by the Science Based Targets initiative, versus less than 15% in transition natural-resources funds. This type of data-driven analysis can help investors assess funds’ alignment with their own transition objectives.
Data as of May 9, 2025. Based on 20 funds with available data in MSCI’s coverage universe. ITR indicates how companies and investment portfolios may align with global climate targets (in degrees Celsius) based on a company’s current carbon emissions across all emissions scopes and projected emissions trajectory. A 1.5°C ITR is fully aligned with the Paris Agreement, whereas a rise below 2.0°C is considered partially aligned. Source: MSCI ESG Research
The transition funds in Singapore, Hong Kong and Australia that we analyzed exhibited differences in portfolio construction, climate-related risk exposures and financial performance, suggesting they can play different roles in investor portfolios. As the transition-funds market grows, undertaking such data-driven analysis may help investors to build and assess transition products and to capitalize on long-term transition opportunities.
Evolution of Fund Naming Calls for Deeper, Data-Driven Sustainability Insights
With ESMA’s fund-naming guidelines coming into effect in May, sustainability-related fund names are declining while transition-themed funds are growing. Data-driven insights will be key to navigating and understanding underlying sustainability attributes.
Olive Is the New Black: The Rise of Transition Funds
Expanding opportunity and a supportive policy environment suggest transition funds may continue to grow. While no one can be certain, understanding the market can help investors determine the best way forward, and how they can work to stand out.
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1 Regional transition-finance initiatives are growing, including Financing Asia's Transition Partnership (FAST-P) and Australia’s Southeast Asia Investment Financing Facility.
2 Transition funds available for sale in Singapore, Hong Kong and Australia, based on two criteria: funds using “transition” in their name, identified through keyword searches, and the transition theme being central to the fund’s investment strategy. Eight funds are only available in individual APAC markets, while the remaining funds are available for sale globally. Six transition funds are common to both Singapore and Hong Kong.
3 For example, Neuberger Berman (NB) Sustainable EM Corporate Debt Fund renamed to NB EMD Corporate - Social and Environmental Transition Fund; NB Responsible Asian Debt Hard Currency Fund renamed to NB Asia Responsible Transition Bond Fund; BlackRock European Focus Fund renamed to BlackRock European Equity Transition Fund; Nordea Global Climate Engagement Fund renamed to Nordea Global Climate Transition Engagement Fund; GMO Climate Change Investment Fund renamed to GMO Climate Change Transition Investment Fund.
4 Greater Bay Area Climate Transition ETF, Neuberger Berman Asia Responsible Transition Bond Fund and iShares MSCI India Climate Transition ETF.
5 We define sectors using the Global Industry Classification Standard (GICS®). GICS is the industry-classification standard jointly developed by MSCI and S&P Dow Jones Indices.
6 The two transition scenarios shown are based on the REMIND climate-economic model and Network for Greening the Financial System (NGFS) pathways. 2°C REMIND NGFS orderly scenario assumes a smooth and predictable transition, where policies are implemented consistently and effectively. REMIND NGFS disorderly scenario assumes a delayed but abrupt transition, where stronger policies are implemented later, causing higher short-term financial impacts but stronger long-term alignment with global decarbonization goals. 3°C REMIND NGFS Nationally Determined Contributions (NDC) scenario represents a gradual, less ambitious transition aligned with countries’ current NDC commitments under the Paris Agreement, leading to higher long-term financial risks due to insufficient policy action.
7 ITR indicates how companies and investment portfolios may align with global climate targets (in degrees Celsius) based on a company’s current carbon emissions across all emissions scopes and projected emissions trajectory.
8 Fund carbon-emissions intensity is measured by tons of carbon dioxide equivalent (t CO2e)/USD million invested. High carbon-emissions intensity is defined as more than 400 t CO2e/USD million invested, which is higher than a broad universe of global equities, as defined by MSCI ACWI IMI (392 t CO2e), as of Jan. 15, 2025.
9 MSCI ESG Research has developed an attribution framework to assess the causes of a portfolio’s ITR changes over time.
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