Sector review: Three Asia and EM equity funds for 2026

Responsible investment in Asia and emerging markets is entering a new phase. Recent years have been marked by geopolitical tensions, policy shifts and changing political narratives. This has led in general to negative sentiment towards the region and a narrow market leadership as well as concentration risk, while from a style perspective, value has tended to outperform growth and quality (the latter traditionally deemed as ‘safe’).  

The combination of higher interest rates, inflationary pressures, and uneven post-pandemic recoveries has led to plenty of companies being de-rated and responsible strategies generally underperforming relative to broader benchmarks and sustained outflows from ESG labelled funds.

Yet, despite this setback, appetite for responsible strategies has not disappeared. With growth momentum slowing across the US and other developed markets, Asia and emerging markets are once again attracting attention as key drivers of future expansion, supported by technological innovation, demand for minerals, renewable energy, and AI-related manufacturing capacity.

Historically, ESG integration and responsible investing in Asia and emerging markets lagged developed economies. That is now changing with regulators across the region introducing sustainability reporting requirements and corporate governance reforms.

These developments are improving transparency and shaping capital allocation behaviour, particularly as large domestic corporations seek global investor inclusion through stronger ESG credentials.

For fund managers, responsible investing in emerging markets requires a bottom-up, engagement-led approach rather than simple exclusionary screening. Key priorities include managing climate transition risk, addressing labour and supply-chain standards, and improving governance oversight within family-owned or state-linked enterprises. However, data quality and ESG comparability can be inconsistent, reinforcing the value of local research and active stewardship.

Against this backdrop, a set of equity funds with attractive responsible investment characteristics stands out within the Titan Square Mile Academy of Funds, reflecting managers that combine disciplined ESG process with a consistent investment approach.

UBAM Positive Impact Emerging Equity fund – Titan Square Mile Responsible A rating

Exclusion	Responsible practices	Sustainable	Impact
Yes	Yes	No	Yes

Launched in May 2020, this fund follows an investment philosophy of generating long-term capital growth by investing in companies which are solving the world’s most pressing problems.

Its experienced management team has worked together for 20 years and believes that companies which help to solve the world’s challenges, such as extreme poverty, access to basic services and climate change, will grow faster and be more profitable than those that don’t.

The team applies a clear investment process that splits stock coverage into six themes which combine environmental and societal considerations and which are aligned to the UN’s Sustainable Development Goals (SDGs).

Any promising ideas are initially scored on four qualitative measures: Intentionality, materiality, additionally and potential (IMAP). This stage of the process is purposefully designed to only assess a company on its impact intensity. The managers then construct a 35-to-45 stock portfolio with their highest conviction ideas, and aim to achieve as much thematic diversification as possible. They also use a systematic tool which combines the IMAP score with quality, growth, valuation, and liquidity characteristics to provide an ideal model weight.

The managers have maintained a consistent process in what has been a challenging period for economies and markets since the fund’s launch, although it is not without some risks. As is the case with many impact strategies, the fund has biases to growth factors which can present headwinds and there will be times when the strategy underperforms as the market chases other themes for returns.

Nonetheless, we believe this fund shows promise as long-term impact focused strategy. Governments’ commitment to achieving the UN SDGs by 2030 will require a significant amount of innovation and capital and we believe the fund is well positioned to benefit from this by investing in companies that are part of the solution.

FSSA Asia Focus fund – Titan Square Mile Responsible AA rating

Exclusion	Responsible practices	Sustainable	Impact
Yes	Yes	Yes	No

FSSA, an autonomous investment management unit within First Sentier Investors, runs a significant level of Asia Pacific and China equity assets and the team managing this growth-oriented fund pursues a rigorous research process. Company and country visits play an important role in this by informing their assessment of a business’s growth sustainability, franchise, financial strength and management.

Importantly, the team believes investment should have a social purpose; companies that ignore their impact on the environment, or that do not look after their customers, employees, suppliers and the larger community are unlikely to be rewarding long-term investments.

The team aims to be responsible stewards of investors’ capital, taking long-term positions in quality companies where management have a longer-term vision of growth and returns, possess a level of integrity and a broader sense of corporate responsibility.

Governance, social and environmental factors are therefore a crucial element of their investment process and team members are expected to incorporate these issues in their interactions with company management and as part of their investment decision-making process.

The resultant portfolio of 40 to 80 holdings is constructed with little reference to a market index, and while there are certain absolute limits to individual industries and countries to ensure sufficient diversification, the sector and regional allocation will ultimately be driven by stock selection.

This means the fund can look very different from its index. The team also has an absolute return mindset, focusing not just on a company’s long-term growth prospects but also on the potential downside risk of an investment.

Overall, we consider this fund to be a very compelling option for long-term investors seeking exposure to Asia Pacific and China equities, but in a more conservative manner, where the emphasis is on identifying higher quality growth companies.

L&G FW ESG Tilted & Optimised Emerging Markets Index – Titan Square Mile Responsible Recommended rating

Exclusion	Responsible practices	Sustainable	Impact
Yes	No	No	No

This fund has the potential of growing investor capital through passive exposure to emerging markets with a responsible investment tilt. It aims to track the Solactive L&G Enhanced ESG Emerging Markets Index, a customised index created by Solactive in conjunction with L&G.

It excludes companies listed on LGIM’s Future World Protection List (FWPL) along with those which generate more than 10% of their revenues from military contracting, tobacco, thermal coal, adult entertainment or gambling, equating to roughly 6%-8% of the investable universe.

However, while many passive ESG funds track a benchmark based solely on exclusions, this fund applies an additional overlay: the benchmark will overweight stocks that score highly according to LGIM’s ESG scoring system and underweight stocks that score poorly.

This scoring system draws on data from numerous independent providers and references over 30 different ESG data points, using a simple rules-based approach to score each stock from 0 to 100. A key differentiator of this is that LGIM considers ‘T’ for transparency assessing ESG reporting and disclosures as a distinct factor alongside E, S and G.

In addition, for a stock to score highly, it needs to have strong scores across all four factors. For example, a stock with a poor Environmental score will score poorly overall, even if it scores well on S, G, and T.

Investors considering this fund should be aware that this is not the perfect ESG solution as certain stocks need to be held to provide broad market exposure. Those seeking an investment strategy with a purer, positive ESG tilt may be better served with an active ESG fund. Overall, however, L&G is a leading name in managing passive strategies and our conviction in this fund is based on the suitability of its benchmark, the size of the fund, its cost, and its good historical record of tracking its benchmark.