The world is undergoing a steady yet deadly change at the moment. The environment is changing due to the ever-growing threat of climate change. 4 out of 5 Singaporeans acknowledge that they deeply care for the environment and about 29% say they would definitely go for more sustainable products if they know the impact their buying behaviour will have on sustainability.
This need for sustainability and the promotion of values that back them has seeped over into the investment sector as well. Investors want to now put their money in companies that align with their own values regarding sustainability. The best possible avenue for these people is Environmental, Social, and Governmental (ESG) investing.
What is ESG Investing?
ESG stands for Environmental, Social, and Governmental. This relates to the different aspects of a company that an investor will invest in. Let’s take a quick look at all three:
● Environmental – this relates to the company’s handling of its environmental impact. How conscious it is of its emissions and carbon footprint and how seriously it takes investing in eco-friendly best practices
● Social – The societal factors include the company’s relationship with its various stakeholders including employees, consumers, and even investors. This also includes the company’s approach towards diversity and inclusivity.
● Governmental – This is to do with the company’s processes to comply with certain standards and ensure quality for their stakeholders.
Are ESG Investments Profitable?
The COVID-19 pandemic was a shocker for many and it left an impact on investors as well. As far as Singapore is concerned, an HSBC survey reveals that more than half of the investors in the country believe that their investment portfolio will comprise 100% of sustainable assets within the next three to five years.
ESG investments may not be too high at the moment but with the way the world is moving, they will be a huge part of investments in the future. The Morgan Stanley institute of sustainable Investments (Esg Investments) reported that these funds did better than traditional ones and came with reduced investment risks in 2020.
Not only this, the Economist Intelligence Unit (EIU) 74% of the 450 institutional investors stated their companies that invested in ESG factors did much better financially as compared to their traditional counterparts in 2020.
Should You Take Professional Advice For ESG Investing?
ESG investing is a relatively new arena. There is a gradual uphill battle for this sector because, like any new form of investment, this one will also face some resistance in the start. There is a considerable amount of risk involved when investors move into something new.
One main factor is the long list of criteria and no standardised metrics to judge a company’s ESG performance. The list of criteria is pretty exhaustive and includes:
● Pollution and waste
● Carbon emissions
● Renewable energy
● Labour laws
● Occupational health and safety
● Human rights
● Child labour
● Risk Management
These are just some of the measuring criteria. The list can go on. However, studies have indicated a positive relationship between ESG compliance and financial returns. Global investment management and research firms not only place a significant amount of time and resources towards keeping abreast with ESG investing trends for their clients. They also invest effort into complying to these factors.
AllianceBernstein is one such firm with global offices. It has recently announced a goal of achieving net zero emissions and staying in line with the Paris Agreement by aligning business operations with a 1.5-degree Celsius pathway by the year 2050. The firm’s commitment to investing responsibly doesn’t end there.
AB has collaborated with Columbia University’s Climate School on climate-policy work in addition to training programs to shape the next generation of professionals striving to address the impact of climate change and develop solutions.
Sustainable investing may be taking time to become the norm but it will soon take over investment portfolios and trends.