What is ESG investing, and why is it important? May 15, 2024

What is ESG investing, and why is it important?

Over the last five years, Environmental, Social, and Governance (ESG) investing has evolved from being a niche strategy to becoming a fundamental approach adopted by investment managers around the globe. There has been an increase in global awareness about how sustainable business practices lead to net positive outcomes for everyone, from investors to society at large. This transition is not just about doing good, but also about aligning investors’ values with their financial objectives.


Understanding ESG Investing

ESG investing considers the environmental, social, and governance practices of the entities being invested in. This helps investors to evaluate potential risks and growth opportunities beyond traditional financial analysis. This approach recognises that ESG factors can significantly affect an organisation’s performance and its long-term sustainability.

Here’s an overview of the three pillars of ESG:

  • Environmental: How a company performs as a steward of the natural environment, such as their carbon footprint, or efforts to reduce their environmental impact
  • Social: How a company manages relationships with its stakeholders – employees, suppliers, customers, and communities
  • Governance: Deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights


Benefits of ESG Investing

1. Enhanced Risk Management:

Companies that neglect or wilfully ignore environmental regulations can ultimately face hefty fines and severe reputational damage, which could greatly impact their stock prices and also future growth prospects. By considering a company’s underlying ESG framework, investors can avoid potentially volatile investments and enhance the stability of their portfolios. Applying an ESG viewpoint to investing acts as an additional layer of risk assessment, helping investors avoid firms with poor practices that could pose financial risks.

2. Access to Investment Opportunities:

Companies leading in ESG often pioneer innovation, opening new markets or creating more efficient processes. Investment in renewable energy technologies, waste reduction techniques, and sustainable agriculture is not just good for the planet but also opens new avenues for business growth.

3. Stakeholder and Consumer Preference:

Modern consumers and employees prefer engaging with socially responsible companies. This shift can lead to increased sales, improved employee morale, and lower turnover rates, all contributing to a company’s financial success.


ESG Investing in Unit Trusts

The integration of ESG screening into unit trusts has enabled individual investors to participate in sustainable investing without having to perform complex individual security analysis on their own. Many unit trusts now focus exclusively on ESG factors, investing in companies that adhere to specific sustainability criteria. These funds often target specific themes such as clean energy, water conservation, or ethical labour practices. Below are some unit trusts where the fund managers consider sustainability when making investment decisions:


United Global Quality Fund

The United Global Quality Growth Fund aims to deliver long-term total return by investing in equity and equity-related securities of companies listed and traded on stock exchanges globally. This fund offers investors the opportunity to gain exposure to high-quality stocks with strong growth potential in the global market.

  1. Since its inception, this fund’s accumulation class has performed at 9.32% per annum at an NAV-to-NAV level as of 31 March 2024.
  2. The underlying strategy is being managed by Lazard Asset Management
  3. The last monthly distribution in March 2024 had an annualised yield of 3.25% per annum for the hedged Singapore dollar distribution class.

Available Fund Classes for Investment:

UOB United Global Quality Growth Fd Cl C SGD (Acc) Hedged
UOB United Global Quality Growth Fd SGD Acc H
UOB United Global Quality Growth Fd SGD Dist H


Phillip Capital Management Sustainable Reserve Fund

This Fund invests all of its assets in global fixed-income instruments including short-term interest-bearing debt instruments and bonds, money market instruments, bank deposits, and fixed deposits. The fixed-income instruments may be issued by governments, government agencies, companies, and supranational bodies. The Fund is a short-duration bond fund with its investments broadly diversified with no specific industry or sectoral emphasis. The fund manager aims to invest at least 70% of the Fund’s total assets in deposits and instruments issued by issuers that meet industry-specific ESG criteria through positive screening and active management.

  1. The investment objective of the Sustainable Reserve Fund is to achieve income yield enhancement over the 6-month Singapore Overnight Rate Average.
  2. Weighted credit rating is at “A” as at 28 March 2024.
  3. Weighted average yield is at 3.89% as at 28 March 2024.
  4. Since inception it has outperformed the benchmark by 0.53% as at 28 March 2024.

Available Fund Classes for Investment:

Sustainable Reserve Fund A SGD Acc (SGXZ39183199)
Sustainable Reserve Fund A SGD Dis (SGXZ21949797)


Nikko AM Japan Dividend Equity SGD

The Fund’s investment objective is to provide total return through capital growth and income over the medium to long term. It focuses on a diversified portfolio of dividend-producing equity investments listed and traded on the Tokyo Stock Exchange. These investments offer attractive and sustainable dividends from companies with relatively strong sustainable cash flows, stable growth, and stable dividend payouts. The Fund will be actively managed and may allocate up to 30% of its Net Asset Value (NAV) to cash to manage downside market fluctuations.

  1. As of 31 March 2024, on an NAV-to-NAV level, the Fund’s Singapore dollar hedged share class performed at 11.88% per annum since inception.
  2. The Fund was within the top quartile of funds compared to its peers in 2023.

Available Investment Options:

Nikko AM Japan Dividend Equity Fd SGD
Nikko AM Japan Dividend Equity Fd SGD Hedged


Conclusion

ESG investing continues to transform the investment landscape, creating avenues for investors to align their financial goals with their ethical values. By focusing on the Environmental, Social, and Governance aspects, investors not only contribute to sustainable global practices but also position themselves to benefit from the resilience and innovation of ESG-compliant companies. Whether through funds that target specific sustainable themes or those like the Nikko AM Japan Dividend Equity Fund, which invests in dividend-rich, financially robust Japanese companies, ESG-focused unit trusts offer both financial returns and positive impact. As the market for responsible investments grows, integrating ESG criteria remains a strategic approach to achieving long-term investment returns and societal benefits.

Disclaimer

These commentaries are intended for general circulation and do not have regard to the specific investment objectives, financial situation and particular needs of any person. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person acting based on this information. You should seek advice from a financial adviser regarding the suitability of any investment product(s) mentioned herein, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to invest in such products.

Opinions expressed in these commentaries are subject to change without notice. Investments are subject to investment risks including the possible loss of the principal amount invested. The value of units in any fund and the income from them may fall as well as rise. Past performance figures as well as any projection or forecast used in these commentaries are not necessarily indicative of future or likely performance.

Phillip Securities Pte Ltd (PSPL), its directors, connected persons or employees may from time to time have an interest in the financial instruments mentioned in these commentaries.

The information contained in these commentaries has been obtained from public sources which PSPL has no reason to believe are unreliable and any analysis, forecasts, projections, expectations and opinions (collectively the “Research”) contained in these commentaries are based on such information and are expressions of belief only. PSPL has not verified this information and no representation or warranty, express or implied, is made that such information or Research is accurate, complete or verified or should be relied upon as such. Any such information or Research contained in these commentaries are subject to change, and PSPL shall not have any responsibility to maintain the information or Research made available or to supply any corrections, updates or releases in connection therewith. In no event will PSPL be liable for any special, indirect, incidental or consequential damages which may be incurred from the use of the information or Research made available, even if it has been advised of the possibility of such damages. The companies and their employees mentioned in these commentaries cannot be held liable for any errors, inaccuracies and/or omissions howsoever caused. Any opinion or advice herein is made on a general basis and is subject to change without notice. The information provided in these commentaries may contain optimistic statements regarding future events or future financial performance of countries, markets or companies. You must make your own financial assessment of the relevance, accuracy and adequacy of the information provided in these commentaries.

Views and any strategies described in these commentaries may not be suitable for all investors. Opinions expressed herein may differ from the opinions expressed by other units of PSPL or its connected persons and associates. Any reference to or discussion of investment products or commodities in these commentaries is purely for illustrative purposes only and must not be construed as a recommendation, an offer or solicitation for the subscription, purchase or sale of the investment products or commodities mentioned.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Contact us to Open an Account

Need Assistance? Share your Details and we’ll get back to you

IMPORTANT INFORMATION

This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

This advertisement has not been reviewed by the Monetary Authority of Singapore.  

 

Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com