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72% of Singaporeans are ESG conscious: how to invest?
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A second, more challenging era for ESG investors dawns

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Brian Rosa joined discussion · Nov 16, 2021 06:53
$Dow Jones Industrial Average(.DJI.US)$ $SPDR S&P 500 ETF(SPY.US)$ $Nasdaq Composite Index(.IXIC.US)$ As these transitions from under-appreciated to fully priced-in occur, some lessons for the next stage of ESG investing are emerging. For institutional investors in this second age of responsible investing, the pathway to generating superior, risk-adjusted returns under an ESG lens will be through the ability to identify themes, handicap their likely trajectory and successfully map the impacts to asset class, sector, industry and company dynamics. No one needs to wonder anymore whether these broad phenomena, many exogenous to the financial system, can have a powerful impact on financial assets. The focus will inevitably turn from the macro to the micro, away from will things change? to how will that change impact society?
At the start of the last decade, it wasn’t all that difficult to identify corporations whose stock prices would be impacted by a large scale transition to alternative energy sources. Large oil companies, for example, stood out easily—especially in the wake of the Deepwater Horizon disaster. In a similar vein, businesses with poor track records on social and governance issues could be flagged relatively easily by ESG-aware investors—and many remained unrepentant. But that’s changed dramatically in recent years, with ESG matters becoming front and center in corporate boardrooms worldwide. Now, the same oil-and-gas behemoths that made for easy targets 10 years ago have doubled down on their investments in alternative fuels—in some cases, becoming significant investors in green energy.3 Traditional mining companies, such as BHP, are now some of the largest investors in rare-earth metals that enable clean technology. Meanwhile, many of today’s well-known tech giants, routinely criticized in the past for poor governance and a lack of attentiveness to social issues, are working hard to improve their operating structures and have stepped up their commitments to the pressing social matters of the day.
The long and short of all of this is that, for a variety of important reasons, advocates for the vital importance of ESG factors in investing have won the battle. Look no further than the chart at the top of this article to see the evidence. Ignoring these factors is no longer an option—nearly all companies must seek to move down the ESG risk spectrum. This is clearly good from an ESG values standpoint, but from a return-seeking standpoint, it likely means that the opportunity for outsized returns has decreased. In other words, the companies who rate highly on the widely proliferating ESG scoring systems are likely to be lower risk than their counterparts, but any massive gains from increased awareness of the issues is likely behind them. Why? Because the knowledge of how these companies are positioning for the future, in regard to environmental, social and governance risks, is now recognized public information—in other words, widely known. This means, for instance, that a company’s plans to achieve carbon neutrality or boost the diversity of its executive team have already been factored into its stock price—leading to possibly higher valuations, sure, but possibly also to less dramatic upside surprise. We refer to this as the working of an efficient market in information—If everyone knows it and everyone values it, there is no extraordinary return to be extracted.
As these transitions from under-appreciated to fully priced-in occur, some lessons for the next stage of ESG investing are emerging. For institutional investors in this second age of responsible investing, the pathway to generating superior, risk-adjusted returns under an ESG lens will be through the ability to identify themes, handicap their likely trajectory and successfully map the impacts to asset class, sector, industry and company dynamics. No one needs to wonder anymore whether these broadphenomena, many exogenous to the financial system, can have a powerful impact on financial assets. The focus will inevitably turn from the macro to the micro, away from will things change? to how will that change impact society and corporations?
So, then, where can investors who still want to achieve strong returns while maintaining a focus on ESG matters turn in this second era of ESG investing?
A second, more challenging era for ESG investors dawns
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  • Teddy Willson : ESG is like a voluntary tax that you pay to feel good about yourself.

  • James Browny : Companies are striving to improve the sustainability of their operations by switching to renewable energy sources and recycling water.

  • Stitch-fu : This is why I'm looking at GE-Hitachi as a long-term play. At some point, the U.S. will have to get serious about nuclear energy if we want to replace 260 million registered ICE vehicles with electric.

  • Z9Gwqc14JU Stitch-fu: Here's a better idea for generating electricity in america....coal. a cheap 400-year supply on the north american continent, but then that's too obvious.

  • ouySFiuuNu Z9Gwqc14JU: Sure, the environment is decaying fast enough for you, let's pump out one of the most toxic climate warming gases out. It's hard to tell if this is trolling or someone truly thinks destroying the climate causing wars, global shortages and mass migration for a quick ephemeral buck is the way to go.

  • GoldenGold : The development of ESG is currently worthy of attention and expectation

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