What is ESG?
For the uninitiated, ESG stands for environmental, social and governance. Increasingly, a company’s impact on the environment and whether its business model contributes to sustainable development matter to its stakeholders and investors. The ESG criteria include how the company manages its waste, the kind of energy sources it uses, the kind of suppliers it works with, how it handles pollution, its attitude to climate change, transparency in accounting and their choice of board members.
Why Should We Care About ESG?
Recently, my powerbank made by a well-known company in China became faulty. When I returned to the authorised distributor to enquire whether they had a recycling program for their old powerbanks, I was told they did not. This is sad as while many people are aware that recycling is important, they do not practise it as they find it costly or inconvenient. The inconvenience factor can be overcome if companies do their part to provide collection points, especially if it is their own products.
If society values ESG and supports companies that have high ESG ratings, then more companies will be incentivised to prioritise sustainable practices alongside profit generation. Our combined efforts can help to keep our planet sustainable for ourselves and future generations.
Never has this been more apparent than the haze that used to be an annual affair for Southeast Asia, triggering respiratory problems, forcing residents to stay indoors and keep their windows shut and causing tourists to cancel or defer their trips; the health and economic costs ran to billions of dollars. The situation only turned around when it was exposed which companies and products were linked to the slash and burn practices. The public backlash was enormous and consumers started boycotting said companies’ products. That in turn put pressure on the regulators.
Having Our Cake And Eating It
Fortunately, being profitable and meeting high ESG criteria are not mutually exclusive. Companies with high ESG ratings are often industry leaders that generate greater returns than their peers as they have better reputation, enjoy stronger customer loyalty and have more streamlined operations that reduce waste. $微軟(MSFT.US)$ , $埃森哲(ACN.US)$ ,$Linde(LIN.US)$ ,$Adobe(ADBE.US)$ ,$賽萊默(XYL.US)$ ,$高通(QCOM.US)$ ,$甲骨文(ORCL.US)$ ,$耐克(NKE.US)$ ,$德州儀器(TXN.US)$ , $英偉達(NVDA.US)$  , $賽富時(CRM.US)$ , $美國超微公司(AMD.US)$, $城市發展(C09.SG)$   , $凱德商用新加坡信托(C38U.SG)$ and $星展集團控股(D05.SG)$ . Hence, it is possible to have our cake and eat it too.
Future Prospects
With the renewed focus on cleaner energy and cutting carbon emissions around the world, ESG investing is the new trend with a “tsunami of money” pouring in, in the words of Piyush Gupta, group chief executive of DBS. Even if the fundamental asset value were to remain unchanged, the increased demand will cause the price of the asset to rise.
Besides buying the stocks of companies with good ESG ratings, there are various ESG funds to choose from like $iShares MSCI USA ESG Select ETF(SUSA.US)$ $環球清潔能源ETF-iShares(ICLN.US)$ and the upcoming $UOB AP GRN REIT US(GRE.SG)$ . The current challenge is there is no unified standard and different methodologies used by different providers can result in different ESG ratings for the same company. For example, $特斯拉(TSLA.US)$ is average among 40 companies in the automobile industry according to MSCI, 20 out of 100 according to SPDJI and in the 61st percentile (high) for ESG risk according to Sustainalytics..
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Disclaimer: The above is my personal opinion. It is not financial advice or a recommendation to invest. Please consult a financial advisor before making any investment decision.
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