As investors become increasingly concerned with environmental, social, and governance (ESG) issues, sustainable stock investing has gained significant traction in recent years. This strategy involves selecting investments that support companies with a positive impact on the environment and society while generating financial returns for shareholders.

In Singapore, where sustainability is a top priority for businesses and government bodies, investors can utilise various advanced ESG strategies to create a sustainable stock portfolio. This article will discuss advanced ESG strategies for sustainable stock investing in Singapore and how they can help investors align their financial goals with environmental and societal concerns.

Integrating ESG criteria into investment decisions

One of Singapore’s most common ESG strategies for sustainable stock investing is integrating ESG criteria into investment decisions. This approach involves evaluating companies based on their environmental, social, and governance performance alongside traditional financial analysis before making investment decisions.

To implement this strategy successfully, investors must have access to reliable ESG data. Fortunately, several databases provide comprehensive ESG information on companies listed in Singapore, such as the SGX ESG Portal and MSCI ESG Ratings. By leveraging these resources, investors can identify companies demonstrating strong sustainability practices and include them in their investment portfolio.

Integrating ESG criteria into investment decisions can help investors avoid financially risky companies with poor ESG performance. For example, a company with a history of environmental violations may face significant financial and reputational damage in the long run. Investors can mitigate potential risks by excluding such companies from their portfolios while promoting sustainable practices.

Impact investing

Another advanced ESG strategy for sustainable stock investing in Singapore is impact investing, which involves investing in companies with a positive social and environmental impact. Unlike traditional investing, where the financial return is the primary goal, impact investing aims to generate both social and financial returns.

Investors can identify potential impact investments by looking at the United Nations Sustainable Development Goals (SDGs) that align with their values and goals. For instance, investors concerned about climate change may buy stocks in companies promoting renewable energy or sustainable transportation.

Impact investing can have a significant impact on addressing social and environmental issues while generating financial returns. In Singapore, this strategy has become increasingly popular with the launch of several initiatives, such as the Impact Investment Exchange Asia (IIX) and Capria Accelerator.

Thematic investing

Thematic investing entails choosing investments based on particular themes or trends aligned with ESG goals. In Singapore, investors can focus on various themes, like renewable energy, clean technology, and sustainable food production.

Thematic investing allows for a more targeted approach to sustainable stock investing by selecting companies that align with specific sustainability goals. These investments can diversify an investor’s portfolio and potentially higher returns in the long run.

Investors can also utilise thematic exchange-traded funds (ETFs) to gain exposure to a group of companies focused on a specific sustainability theme. For example, the Lion-OCBC Securities Hang Seng TECH ETF focuses on investing in technology companies that promote sustainable solutions.

Active ownership and engagement

Active ownership and engagement involve using shareholder rights to positively influence companies’ behaviour and practices. This strategy requires investors to actively engage with the company’s management, express their views on ESG issues, and push for change.

In Singapore, investors can participate in shareholder engagement programs led by organisations such as the Principles for Responsible Investment (PRI). These initiatives facilitate dialogue between investors and companies, promoting positive ESG practices.

Active ownership and engagement can generate long-term value for investors by influencing companies to improve their sustainability performance. For example, investors can push for increased transparency and accountability on ESG issues through shareholder resolutions.

Low-carbon investing

As Singapore continues reducing carbon emissions, low-carbon investing has become a prevalent ESG strategy for sustainable stock investing. This approach involves selecting investments in companies on the stock market with low carbon footprints or those actively transitioning to renewable energy sources.

Investors can identify potential low-carbon investments by looking at the Carbon Disclosure Project (CDP) and other databases that provide carbon emission data. These resources can help investors make informed decisions and select companies with strong sustainability practices.

Low-carbon investing supports Singapore’s efforts to combat climate change and presents significant opportunities for financial returns. As the world moves towards a greener future, companies with low carbon footprints will likely experience increased demand and potentially higher returns for investors.

Best-in-class approach

The best-in-class approach involves selecting the best-performing companies based on ESG criteria within a particular industry or sector. This strategy allows investors to compare companies’ sustainability performance and choose those with the most robust ESG practices.

In Singapore, investors can leverage resources such as the Dow Jones Sustainability Indices (DJSI) to identify top-performing companies in various industries. By investing in these companies, investors can support sustainable practices and benefit from their strong financial performance.

The best-in-class approach ensures investors select the most sustainable options within a particular industry. This strategy promotes healthy competition among companies to improve their ESG performance and encourages others to follow suit.