ESG Investing for Singaporeans

ESG abbreviates Environmental, Social and Governance.  ESG investing refers to a field of investing also known as sustainable investing.  This is an umbrella term for forms of investment which seek good returns on investment, married to positive long-term impact on society, the environment, and the ethical performance of the business. 

ESG investing evaluates the non-financial performance indicators of business on the basis that non-compliance in matters of ESG reflect values which are inclement to long-term sustainability, and is a foundation for risky behaviour.  ESG criteria themselves mean adherence to laws on the environment, resource management principles, and behaviour which precludes discrimination and financial malfeasance. 

In an age of investor activism, ESG investing is a growing trend.  It gives investors the power to collectively shape business behaviour of major corporations for the better, for a better future for all humanity.  In a time of major climate change brought about by human behaviour, the search for profits at all costs has negatively impacted the world.  This has lead to massive pollution, deforestation, reduced biodiversity, and man-made disasters.  There is a cost that the wider community has to pay, often over several generations, from health, to environment, to economic impact. 

Singapore is an island nation, at the tip of the Malay Peninsula.  We are uniquely vulnerable to changes in global trade patterns, rising sea levels, and the cost of reduced food yields across the world.  ESG investing is very much in our self-interest.  It is part of our economic defence.  ESG investing is not merely something left to large corporations, whether GLCs or MNCs.  It is something small investors should get into as well. 

Firstly, ESG investing is changing the way businesses operate, and the finance industry disburses funds.  Companies and industries that are viewed as ESG complaint are gaining traction, and growing.  Companies and industries viewed as non-ESG compliant, such as the coal industry, are effectively sunset industries. 

Secondly, ESG criteria mitigates risky behaviour in management.  For example, a company caught polluting the environment, or destroying rainforest not only faces massive fines and legal action, but there is a negative impact on goodwill.  Negative goodwill, legal costs and fines, and loss of market share have a massive impact on the business, adding to costs, and evening leading to losses. 

Thirdly, especially for long-term investors, we want to live in a better world when we take our profit, whether in retirement, or to leave a legacy for our children.  We do not want to destroy the planet while we generate shareholder value. 

ESG investing is not just common sense, but profitable.  ESG investing generates sustainable growth for the business, meaning profits over a longer period of time, with mitigated risk exposure.  At the same time, we abide by principles we can be proud of, as our legacy.  It would be illogical to consider an alternative to this.