2 August 2024

ESG Investing Trends: Embracing the Future of Responsible Finance

ESG, standing for Environmental, Social, and Governance, has been a buzzword in recent years, and is increasingly becoming a mainstay of investment decisions in the financial industry. As awareness of sustainability issues grows, businesses and investors in Singapore are considering not only financial performance, but the broader impact their investments can have on society and the environment. As a global financial hub, Singapore businesses must embrace ESG principles and align their financial goals with sustainable practices in order to stay at the forefront of the economy.
 

This shift from the traditional “bottom-line only” perspective to looking holistically at ESG factors for a business is reflected through ESG investment strategies that aim to align capital growth with responsible business practices, which help ensure long-term sustainability.

Definition of ESG Investing

Environmental, Social, and Governance (ESG) Investing refers to the act of screening investment options based on ESG criteria, particularly the policies of a company and the corresponding impact it has on the environment, its stakeholders and the community. Investors actively seek out companies which incorporate robust ESG criteria into their core business, to ensure that they generate financial returns while managing their impact on the environment, put in place strong leadership and governance, as well as promote social equity and corporate responsibility. These are often seen as indicators of lower risk and higher potential for long-term returns.
 

Here are some ways that Singapore businesses are making a commitment to ESG investment goals in a rapidly evolving landscape, in order to achieve higher economic benefits and practise social responsibility

1: Prioritising Net-Zero

Investors are increasingly factoring in Net-Zero commitments when evaluating the potential of companies. In an ESG context, Net-Zero refers to achieving a balance between the amount of greenhouse gases emitted and the amount removed from the atmosphere. Essentially, it is the goal of completely neutralising or offsetting a company's carbon footprint.

A strong focus on decarbonisation and the reduction of greenhouse gas emissions is an environmental decision that reflects well on a company's commitment to our planet and our future generations. Companies aiming for net-zero are often involved in a variety of sectors with far-reaching impact on the environment. Investment in these entities is not only viewed as a contribution to combating climate change but also as a reflection of prioritising long-term and sustainable profitability rather than short-term returns. Investors recognise that these companies are likely to have significant room for growth as markets increasingly shift towards sustainable and environmentally friendly practices.

Moreover, institutions like the Monetary Authority of Singapore (MAS) play a pivotal part in ensuring that industry players are aligned with global environmental targets. One key example is the formation of their Green Finance Industry Taskforce (GFIT), an initiative that establishes best practices for the green finance sector in Singapore. By involving banks, asset managers, insurers, and other stakeholders, it has created a set of guidelines and established a handbook on environmental risk management within these industries.

2: Growing Sustainable Finance Research and Talent Ecosystem

The growth of sustainable finance and investing relies on a skilled workforce. Organisations and governments are recognising the essential role of having a robust talent pool in ESG initiatives. Thus, MAS has spearheaded efforts to nurture a sustainable finance talent ecosystem.

One notable endeavour is the establishment of a professional association in Singapore: The Singapore Sustainable Finance Association (SSFA). This institute aims to foster a community of sustainable finance experts through training and upskilling initiatives. These experts are able to contribute to a workforce dedicated to addressing both market needs and the broader environmental goals.

MAS has also been an advocate for a holistic ecosystem that combines both sustainable finance research and talent development. The move to integrate these critical components is expected to address the global demand for professionals with ESG competencies. By aligning research initiatives with talent development, Singapore is positioning itself as a hub for sustainable finance.

3: Investing in Green FinTech

Green FinTech Initiatives are investing strategies that combine financial technology with environmental considerations. Financial technology innovations are used to drive efficiency in green financing and investing, enhancing transparency and fostering sustainable business practices.

Financial regulators have a crucial role in nurturing this ecosystem. The MAS, for example, has taken significant steps to advance the green finance agenda through innovation and technology. One initiative is Project Greenprint, a system where companies can report ESG data with greater ease, reliability, and clarity. Through automation, efforts to make climate-related financial disclosures are greatly simplified, meeting the needs of SMEs and promoting more participation in green practices within the finance industry.

With an increasing number of institutions and consumers placing a high value on environmental responsibility, investment in Green FinTech is poised to experience healthy growth. It is clear that green innovation within financial services is not just a passing trend, but an integral component of future investment strategies.

4: Making Long-Term Commitments

Organisations are increasingly recognising the importance of long-term planning in their ESG strategies. This involves making enduring commitments that stand up to the challenges of an uncertain future. They must focus on resilience and adaptability, essential qualities for navigating ESG complexities.

Companies cultivate resilience through robust supply chain management, ensuring that they can meet both present and future environmental standards. Strong customer relations are equally significant, as stakeholder expectations are evolving toward a preference for sustainability.

Long-term sustainability efforts include measures such as mandatory climate-related reporting, in line with standards set by the International Sustainability Standards Board (ISSB). The Accounting and Corporate Regulatory Authority (ACRA) and Singapore Exchange Regulation (SGX RegCo) have announced plans to make ISSB standards mandatory, beginning from 2025. This reflects a long-term commitment to adhere to international ESG requirements and signals a green business strategy nationally.

As various ESG factors continue to shape and change the financial landscape, companies must continually evaluate and enhance their strategies to address emerging trends and societal expectations.

5: Fostering Active Collaboration

As the saying goes, “Alone we can do so little; together we can do so much.” Active collaboration amongst businesses is a key tenet to achieving greater impact and greater returns. By combining strength with their peers, organisations can forge scalable and significant environmental and social changes. 

Some examples of international collaborations are the Sustainable Insurance Forum (SIF), which is a global network of insurance supervisors that collaborate on sustainability issues, and the G20 Sustainable Finance Working Group— a government forum involving 19 countries and the European Union. Regular activities and talks take place between these groups in order to form a common and sustainable ESG Investing agenda.

Active collaboration in ESG investing turns individual voices into a collective effort, and harnesses the power of teamwork for the greater good.

Embodying ESG in RHB

At RHB, we recognise that ESG is not just a trend but an important dimension for business considerations that we have incorporated as an integral part of our business strategy. Beyond fostering sustainable growth and ensuring long-term financial returns, ESG considerations are at the core of our business as we are committed to playing our part for the environment and giving back to our community. In 2023, RHB Singapore’s sustainable investments surpassed SGD 750 million, achieving 430% of our annual target. Apart from our green investments, we are also committed to conservation of the environment such as through our company beach clean-up programme, and our Corporate Social Responsibility initiatives including our flagship Financial Literacy Programme for youths. Learn more about RHB’s ESG commitments and the strides we have made in our sustainability journey from our Sustainability Report 2023. 

We believe that embracing ESG into our business is a journey and we will continue to strive ahead to play our part for the environment.