Top 3 ESG Investing Ideas for National Day 2021 August 2, 2021
With growing interest in environmental, social and governance (ESG) issues, we explore the top 3 Singapore stocks with the best performing ESG ratings for your National Day 2021 ESG investing.
ESG investing has become very popular with investors who are concerned about the wider social, environmental and governance impact of the businesses they invest in.
Also known as sustainable investing, the ESG approach to investing was first mentioned in the United Nations’ Principles for Responsible Investment in 2006.
At that time, 63 investment companies comprising asset owners, asset managers and service providers with US$6.5tr of assets under their management signed a commitment to incorporate ESG considerations in their investment decisions. By April 2018, the number of signatories had grown to 1,715. Together, they managed US$81.7tr of assets.
Today, ESG criteria are increasingly used by socially-conscious ordinary investors to screen their investments. Millennials, in particular, have shown an avid interest in putting their money in investments which align with their personal values as well as contribute to the social good.
Many mutual funds and robo-advisors have sprung up to offer products that employ ESG criteria to meet their demand.
What to consider
Investors usually consider issues such as greenhouse gas emissions, energy consumption, employee productivity, gender diversity, supply-chain management, company board leadership and executive compensation. When investors select quality ESG companies to invest in, they also require that the companies generate appropriate investment returns.
But ESG performance benchmarks differ from rating provider to rating provider. This makes ESG investing not as straightforward as stock evaluation using fundamental analysis.
To improve comparability across and within sectors, SGX has partnered leading rating providers such as Sustainalytics to provide ESG scores for companies listed on the exchange. The scores are based on each rating provider’s proprietary model. For more information, visit SGX ESG Stock Ratings (https://www.sgx.com/esg/stock-ratings).
3 stocks that have performed well in SGX’s ESG ratings
City Development (SGX: C09)
City Developments (SGX: C09) is one of Singapore’s leading real-estate developers. It has built over 15,000 homes since 1963. It is also one of Singapore’s largest commercial, hospitality and retail landlords with operations in 29 countries. Seven of CDL’s companies are listed on the stock exchanges of Singapore, London, Amsterdam, Hong Kong, New Zealand and Manila.
As of 23 July 2021, CDL had the highest FTSE Russell rating of 4.1 with an MSCI score of AAA and S&P Global ESG grade of 72 on the SGX.
These high ratings (derived from SGX platform) represent the fruits of CDL’s pursuit of sustainable development and ESG integration for over two decades.
CDL’s ESG track record includes:
- Cutting carbon emissions by 44% from 2007 to 2020. It is on track to meet its target of a 59% reduction by 2030. It is the first developer in Singapore and first real-estate conglomerate in Southeast Asia to sign WorldGBC’s Net Zero Carbon Buildings Commitment and commit to achieving net zero operational carbon by 2030.
- Achieving energy savings of over S$30mn from 2012 to 2020, with the help of energy-efficient retrofitting and initiatives across its commercial buildings.
- Engaging its supplier network to address climate change. CDL was the only real-estate company in Southeast Asia and the only Singapore company awarded the 2020 Supplier Engagement Leader by CDP, a sustainability advocate.
- Setting the Guinness record for the world’s largest vertical garden at its Tree House condominium. Completed in 2013, the eco-inspired Tree House’s green installations include natural insulation, heat-reducing windows and lifts with sleep mode programming.
- CDL’s D’Nest development set the record for the largest solar panels in a condominium in Singapore in 2013.
- In 2013, CDL built Singapore’s first zero-energy Green Gallery in the Botanic Gardens with photovoltaic-cladded roof panels.
- In social capital, CDL helped its Singapore and overseas tenants tide over COVID-19 by providing over S$40mn in property tax rebates and rental relief in 2020. It once again extended rental, operational and marketing support to more than 400 of its affected tenants during Singapore’s recent return to Phase 2 Heightened Alert.
CDL intends to keep building environmentally-friendly properties that not only improve lifestyles but also create a positive impact on the environment. It has designated green innovations for its next phase of sustainable development.
Stock performance, however, has been affected by a one-off impairment charge of S$1.78bn taken for its Sincere Property Group investment FY2020.
Due to the prolonged Covid-19 pandemic, revenue from its hotel operations, property development and investment properties also declined in 2020.
As a result, the group reported a net loss of S$1.9bn for FY20.
CDL trades at 0.7x price-to-book with a 5-year average dividend yield of 1.277%.
DBS (SGX: D05)
DBS (SGX: D05) is one of the largest financial-service groups in Asia. The largest bank in Singapore by assets and a leading bank in Hong Kong, DBS has leading positions in corporate, SME and consumer banking, treasury operations, wealth management, securities and equity and debt fund-raising. As of 23 July 2021, it had a 3.7 FTSE Russell rating on the SGX’s ESG scoreboard with an MSCI grade of AA and S&P Global ESG score of 68.
In recent years, DBS has gone big into social impact for profit. It actively promotes and nurtures social enterprises and self-sustaining businesses that can address social needs as well as offer sustainable solutions.
DBS supports social enterprises that provide jobs, goods and services to the disadvantaged and marginalised. This harks back to the time it was set up as Singapore’s development bank to develop the country’s fledgling economy. The bank has now extended its social mission to the creation of a more inclusive society.
DBS has also widely endorsed ESG investing and provides investors with access to ESG portfolio investing.
1Q21 financial results were spectacular, with quarterly net profits crossing S$2bn for the first time. Price-to-book of 1.406x and a P/E ratio of 16.632 are better than industry peers. Its 5-year dividend yield also averages 4.16%.
Investors have rewarded the bank by sending its share price up 18% since the start of the year.
SembCorp Industries (SGX: U96)
SembCorp Industries (SGX: U96) ranks third on the SGX’s ESG platform. It had a rating of 3.5 by FTSE Russell, an A score from MSCI and an S&P Global ESG grade of 59 as of 23 July 2021.
After a recent corporate restructuring, SembCorp Industries will be focusing on two businesses: renewable energy and integrated urban solutions.
SembCorp Industries is one of the largest homegrown renewable-energy players with more than 3,300MW of capacity globally. Its renewable-energy portfolio consists of wind, solar and energy storage in Singapore, Vietnam, China, India and the UK. It continues to target growth opportunities in this area.
In urban solutions, it has been equally active and innovative.
The group has developed integrated solutions for power, gas, steam, water, wastewater treatment and other on-site services that not only address resource scarcity in Singapore but also environmental sustainability. For this, it has been rewarded in various ESG scores.
Meanwhile, SembCorp Industries will reduce its reliance on conventional energy. It is leveraging technologies to maximise energy generation from traditional fuel sources as well as minimising its carbon footprint.
Driven by its vision of a sustainable future, SembCorp Industries recently devised a Climate Action Plan that spells out how it would contribute to energy transition, sustain urban development and protect the environment. The company constantly monitors its own ESG performance.
Its stock trades at 1.1x price-to-book with an average 5-year dividend yield of 3.659%.
Share price gained about 25% in the first six months of this year.
Finding the best ESG companies with strong business growth need not require a trade-off with environmental, social and governance values.
The above three stocks on the SGX are among those with the lowest ESG risk exposure.
Investors can use the SGX ESG ratings together with fundamental and technical stock analysis to sift out stocks that can offer the best of both worlds.
So start commemorating this year’s National Day with some socially responsible investing!
Investment Specialist, Phillip Securities Pte Ltd
Senior Account Executive, Phillip Futures Pte Ltd
(A member of PhillipCapital)
Email address: firstname.lastname@example.org
About the author
Investment Specialist, Phillip Securities Pte LtdSenior Account Executive, Phillip Futures Pte Ltd
Stephen is responsible for servicing a portfolio of diverse clients, offering them actionable financial insights on multiple asset classes and has over 20 years of experience in stocks, FX, CFD and derivatives, providing market color and how best to implement a successful trading plan on a market view. Stephen has also developed versatile trading strategies for stock markets with the application of statistical models and trading systems on individual company stocks. He holds a Bachelor in Business Administration and has won several accolades for his work as a Phillip CFD specialist and is a regular contributor of stock technical analytics commentary for Phillip Futures Market Research and market commentator for FM 95.8 and FM 96.3.