Beginners’ Guide to Sustainable Investing in Singapore

This post was originally posted on Planner Bee.

Climate change is a global problem. Not only does it threaten our access to food and water, it also makes Singapore vulnerable to rising sea levels as it is a low-lying city-state.

As people’s awareness of environmental and social issues grow, more are learning and turning towards sustainable investments. Investors want to place their money in companies and ideologies that are aligned with both their financial and environmental goals.

New to sustainable investing and want to know more? This piece will dive into the components of sustainable investing, why people are looking into it, some of the terms that you should be familiar with, and examples of sustainable investments that you can look into in Singapore.

What is sustainable (ESG) investing?

Sustainable investing, also known as Environmental, Social, and Governance (ESG) investing, allows investors to grow their wealth while supporting companies that prioritise responsible practices.

The three pillars — Environmental, Social, and Governance — cover a broad scope of issues and sectors, and can be individually categorised into this non-exhaustive list:

Not only do responsible investors consider financial returns, they also think about what matters most to them. Some questions these investors ask themselves before diving into investing include:

• What in ESG am I most passionate about?
• Am I most worried about climate change, fair labour practices, or business ethics and corruption?
• Do I want to invest in companies with strong corporate governance?

By identifying your priorities, you can narrow your choices and focus on companies that align with your values, ensuring your investments resonate with your principles.

Read more: ESG Investing: Our Guide to Socially Responsible Investing

Why invest in sustainable funds?

Sustainable investments grow your wealth while positively impacting the causes you care for.

Many investors, especially younger ones, see their investments as a means to create a world they want to live in. Sustainable investing might not solve global issues overnight, but backing companies that are committed to making the world a better place is a start.

Sustainable companies also often have lower regulatory and legal risks, as well as more long-term stability.

Companies with good ESG practices tend to attract positive consumer sentiment and investor interest, often leading to competitive financial performance over time. Governments also tend to reward ESG-compliant companies, which can help to boost the brands’ stability in the long run.

Just because an investment is being responsible for the environment does not mean it can’t make you money.

Investing sustainably does not mean compromising on returns. Many ESG-focused companies perform competitively in the market, often exhibiting greater resilience to environmental and social risks.

Read more: 5 Costly Investment Mistakes You Should Avoid

Terms to familiarise yourself with

Sustainability is a buzzword we have heard many times over. ESG priorities can add an additional layer of new terms to consider to traditional investing.

What’s the Paris Agreement? How about ESG integration, greenwashing, and climate change?

Before you dive into ESG investing, here are some of the terms that you should familiarise yourself with:

• Climate change: According to the United Nations, climate change refers to “long-term shifts in temperatures and weather patterns.” While these shifts can be natural, human activities have been the main driver of climate change, primarily due to the burning of fossil fuels like coal, oil and gas. Climate change is not just an increase in Earth’s temperature, but also environmental consequences such as water scarcity, intense droughts, rising sea levels, melting polar ice, catastrophic storms and declining biodiversity.
• Greenwashing: Greenwashing presents a false impression or conveys misleading information about how a company’s products are environmentally sound or have a positive environmental impact when they are not. Greenwashing also occurs when a company attempts to showcase sustainable aspects of its products to hide or minimise its involvement in environmentally damaging practices.
• The Paris Agreement: A legally binding international treaty adopted by 196 parties at COP21 in Paris on 12 December 2015, the Paris Agreement vows to combat climate change, working together to limit global warming to 1.5 degrees Celsius. Singapore ratified the Paris Agreement on 21 September 2016 in New York, becoming one of the first few countries to do so, alongside 30 other countries.
• Sustainable Development Goals (SDGs): The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a shared blueprint for peace and prosperity for people and the planet, now and into the future. The 17 SDGs include: no poverty, good health and well-being, sustainable cities and communities, and decent work and economic growth.
• Positive screening: Actively seeking out investments that match your values is known as positive screening. You pick the top performers based on your chosen criteria, such as lowest carbon footprints, greatest community engagement, or lowest corruption, to invest in.
• Negative screening: As opposed to positive screening, negative screening is where you could avoid any investments in areas that you disagree with. You exclude companies that do not align with your ESG views. For example, someone concerned about climate change will exclude fossil fuel companies when investing.
• ESG integration: This approach integrates a company’s ESG profile as a key consideration, alongside traditional financial metrics like cash flow or financial ratios, when deciding whether to invest in the company or not. By applying this strategy, you can reduce the risk of financial or reputational harm due to poor ESG practices within the company. However, the main focus of ESG integration remains on the company’s financial performance.

Examples of sustainable funds for investors

Singaporeans have access to a growing number of ESG funds and investments as interest in sustainable finance grows steadily.

Singapore’s Green Bonds are government-issued bonds to fund infrastructure and environmental projects as part of the Singapore Green Plan 2030. These bonds focus on sectors like sustainable transportation, renewable energy, and eco-friendly urban development.

Investors can also look into ESG-focused ETFs and Unit Trusts which pool investors’ money to invest in companies with strong environmental, social, and governance practices.

An example of such a fund is the UOB United Sustainable Credit Income Fund. Managed by UOB, this fund invests in the RobecoSAM SDG Credit Income, which is an actively managed fund that invests in companies that contribute to realising the UN SDGs.

For beginner investors, robo-advisors like StashAway and Endowus offer ESG-focused portfolios where you can choose from a selection of ESG portfolios expertly crafted or curate your own portfolio according to your needs.

Alternatively, you can also consider directly investing in an ESG-compliant company by buying their stocks. Some examples of such companies in Singapore include Capitaland, Keppel Corporation, and UOB Group.

Read more: Eco-Friendly Personal Finance: How You Can Make the Switch Too

Ready to invest in a sustainable future?

Sustainable investing is more than a trend. It is here to stay, especially with more keen to be ESG-compliant across the globe.

By being a responsible investor, you support companies that align with Singapore’s and the world’s vision for a greener future. By incorporating ESG factors into your investments, you can support and contribute to the SDGs while building a more resilient and diversified portfolio.

Sustainable investments focus on long-term value creation and preservation and are best considered when aligned with investors’ long-term goals. Start small, spread your investments over different sectors, and continue to stay informed about ESG happenings around the world to build a portfolio that both grows your wealth and aligns with your values.

Read more: Go Green or Go Home? Sustainable Investing is Here to Stay