ESG Investment Strategy: The Latest Investing Trend

In the investment space, there are lots of different investment strategy being introduced in recent years. However, as investors and some asset managers are shifting their focus towards sustainability in investment approach, this has allowed ESG investment strategy to gain huge popularity and adoption in the investment world.

What is ESG Investment Strategy?

ESG investment Strategy is sometimes referred to as sustainable investing, responsible investing, impact investing, or socially responsible investing. ESG investment strategy can help investors avoid companies that might pose a greater financial risk due to their environmental or other practices.

ESG investment strategy represents 3 categories: Environmental, Social, and Governance.

Below is the summary for each category:

Within the Singapore Stock Market, Singapore Exchange has shortlisted and ranked some companies by using the MSCI ESG Rating and Sustainalytics ESG Rating.

Below are the descriptions of the ratings:

• MSCI: MSCI uses a rules-based methodology to identify industry leaders and laggards according to their exposure to ESG risks and how well they manage those risks relative to peers. The scores range from AAA (ESG Leader) to CCC (ESG Laggard).

• Sustainalytics: Sustainalytics ESG Risk Ratings use a rule-based methodology to measure a company’s unmanaged ESG risks driven by its exposure and management of material ESG issues. They are categorised across five risk categories – namely Negligible, Low, Medium, High and Severe - to indicate the level of ESG risk to a company’s enterprise value.

In this article, we will look at some of the companies that have achieved a high ESG rating, mainly, CapitaLand Limited, Singapore Telecommunication Limited and Singapore Exchange Limited.

1) CapitaLand Limited (SGX: C31)

CapitaLand Limited (“CapitaLand”) is a diversified real estate company. The Company owns and manages a portfolio of diversified real estate classes which includes commercial, retail; business park, industrial and logistics; integrated development, urban development; as well as lodging and residential.

Based on the MSCI ESG Rating, CapitaLand's rating remains unchanged since September 2016 with a ranking of “AA”. On top of that, CapitaLand is a leader among 81 companies in the real estate development & diversified activities industry.

Sustainalytics ESG Risk Rating

In terms of Sustainalytics rating, CapitaLand has achieved an ESG risk rating of 15.6, which indicates low risk for the company when faced with ESG issues. With this score, CapitaLand ranks 199th out of 1026 companies in the Real Estate Industry Group, which is within the top 20% in the industry group.

2) Singapore Telecommuncation Limited (SGX: Z74)

Singapore Telecommunications Limited (“Singtel”) is a communications technology company. The Company provides a range of telecommunications and digital services to consumers and businesses across Asia, Australia, Africa and the United States. Its segments include Group Consumer, Group Enterprise and Group Digital Life.

MSCI ESG Rating

Based on the MSCI ESG Rating, Singtel has maintained a “AA” ESG rating since February 2017. With a “AA” ESG rating, Singtel has been categorised as a leader among 76 companies in the telecommunication services industry.

Sustainalytics ESG Risk Rating

In terms of Sustainalytics rating, Singtel has achieved an ESG risk rating of 19.8, which indicates low risk for the company when faced with ESG issues. With this score, Singtel ranks 25th out of 208 companies in the Telecommunication Services industry, which is within the top 12% in the industry group.

3) Singapore Exchange Limited (SGX: S68)

Singapore Exchange Limited (“SGX”) is a Singapore-based market infrastructure. The Company operates equity, fixed income and derivatives markets. It operates through three business units: Fixed Income, Currencies and Commodities; Equities (Cash and Derivatives); and Data, Connectivity and Indices. It provides listing, trading, clearing, settlement, depository and data services.

MSCI ESG Rating

Based on the MSCI ESG Rating, SGX recorded a rating of “A” for 2017 and 2018 and this has been upgraded to a rating of “AA” in 2019. With a “AA” ESG rating, SGX has been categorised as a leader among 76 companies in the diversified financials industry.

Sustainalytics ESG Risk Rating

In terms of Sustainalytics rating, SGX has achieved an ESG risk rating of 17.5, which indicates low risk for the company when faced with ESG issues. With this score, SGX ranks 75th out of 736 companies in the Diversified Financials industry, which is within the top 10% in the industry.

Conclusion

From the above, we have witnessed the high ESG rating from these 3 companies. The rating suggests that the companies are well-positioned to tackle any ESG related issues that they are facing. On top of that, a high ESG rating could potentially attract funds that have an SG investment mandate, to invest in them.

That said, despite the popularity with ESG-focused investing, investors should still consider the company's fundamentals to ascertain whether the company is worth investing in.

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