Sustainable investing: Why you should invest in going green
Commit to a more eco-conscious lifestyle and up your green living with some sustainable investing. Here’s how
Text: Tiff H
So, you’ve got your reusable straw, you bring a tote bag with you when grocery shopping, and you’re thinking what next? While there are bountiful ways to go green in Singapore, from eating plant-based to getting an app to track your sustainable actions in return for rewards, the idea of sustainable investing may seem daunting (and let’s face it, a bit dull!).
But wait up! ESG (environmental, social and governance) investments are growing in popularity. A study showed that investments into ESG assets grew up to 72% in 2020 and another report revealed that 40% of Singapore investors are considering allocating 5 to 15% of their funds to sustainable investments over the next three years. So maybe green investments should be at the top of our sustainable development goals? We give you the low-down on ESG investments and why you should open up your mind to green living and your wallet.
What are ESG investments?
ESG (Environmental, Social and Governance) investing refers to investing also known as “sustainable investing.” This is an umbrella term for investments that seek positive returns and long-term impact on society, the environment and the performance of the business. This includes companies in the renewable energy industry or those with equal opportunity employment and a diverse management team.
“At its core, ESG investing is about influencing positive changes in society by being a better investor,” says Hank Smith, Head of Investment Strategy at The Haverford Trust Company.
Why you should consider investing in ESG assets
1. It’s better for the environment
One of the main criteria when evaluating companies for ESG investing is its environmental impact, going green and any business activities which might have a negative impact on air, land, water, ecosystems and human health.
Environmental activities that are considered ESG factors include preventing pollution, managing resources, reducing emissions and climate impact, and executing environmental reporting. Environmental positive outcomes include lowering costs and increasing profitability through clean energy, talk about green living.
When you’re investing in companies that meet the strict standards, you’re signalling to them and the industry that it pays to be environmentally conscious and go green in Singapore. The idea is that this creates a virtuous cycle where you see a chain reaction of other companies in the industry following suit.
2. It’s better for humanity
ESG criteria mandate that a company examines its social impact, both within the company and in the broader community. This means researching a company’s treatment of people including its employees, stakeholders and customers.
This also encompasses social factors such as LGBTQ+ equality, the racial diversity of staff, inclusion programmes and hiring practices. On a societal level, companies that work with conflict regions and local, indigenous communities will have strong, sustainable, social credentials.
3. It’s potentially better for financial performance
It’s a common misconception that you need to sacrifice profit for purpose and sustainability. Yet, beyond its ability to help identify attractive investment opportunities, the ESG approach reduces portfolio risk in the long term, which means you don’t have to choose between sustainability and potential returns.
A study that surveyed about 200 scientific sources on the economic effects of sustainability found that companies with good ESG performance tend to have better stock prices, better operations, and a lower cost of capital. Companies that fail to recognise the ESG challenges we face today can impede their own growth. Those who make the effort to be more sustainable, however, are future-proofing themselves, and are ultimately better positioned for growth.
