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A guide to greener and more ethical investment options

As global challenges such as climate change and social inequality increase, sustainable investing offers a more ethical choice for investors.

Sustainable investing integrates environmental, social and corporate governance (ESG) factors into an individual’s investment thesis.

Investors are not only championing corporate social responsibility, but also positioning themselves to benefit from the long-term growth of companies that integrate such factors.

It’s a win-win situation: sustainable investing is not only good for the planet and also does wonders for your portfolio

The growing trend of sustainable consumption

A recent study conducted by Rakuten Insight revealed some positive results.

The survey, which involved more than 109,000 consumers in the Asia Pacific (APAC), shows that consumer involvement in sustainable consumption is increasing.

Key findings show that almost half of respondents (44.9%) prioritize purchasing sustainably made or eco-friendly products, a significant increase from 2022 (43.3%).

It is striking that generation Z is taking the lead in this trend, with 88% attaching value to sustainability, closely followed by baby boomers with 79%.

Consumers are also willing to pay more for sustainable products, with the percentage increasing from 67.6% in 2022 to 67.9% in 2023, especially among younger generations.

The shift in consumer behavior towards sustainability also has consequences for the financial sector.

The growing demand for sustainable products is changing markets and motivating investors to think about the impact of their investments.

According to research from Kroll, their ‘ESG Returns Study’ found that companies with better ESG ratings tended to outperform their peers between 2013 and 2021.

Notably, companies considered “leaders” in ESG achieved a compound annual return of 12.9%, compared to 10.9% for average companies and 8.6% for laggards.

This difference in return can have various causes.

Companies with sustainability initiatives often see gains in operational efficiency, better risk management and the ability to attract and better retain talent, driving innovation and improving their financial performance.

An example of such a leader is Adobe (NASDAQ: ADBE).

Screened by MSCI (NYSE: MSCI), Adobe is being recognized for its efforts to reduce carbon emissions as the company aims to reduce its carbon footprint by 2.27% annually.

The company has also embedded important issues such as gender equality and labor rights into the company’s core mission.

Because Adobe is not involved in controversial products such as weapons, alcohol or tobacco, Adobe is one of the leaders in ESG ratings.

Adobe receives a triple A grade, making it a leader among 475 companies in the software and services sector.

Reassess your portfolio

The compelling evidence of superior returns among ESG leaders underlines the tangible benefit of incorporating sustainability into a Smart Investor’s portfolio.

As a supportive measure, the Singapore government recently made climate reporting mandatory for all listed companies on the coast Singapore stock exchange (SGX: S68) from 2025.

This policy increases transparency between investors and companies and encourages companies to remain committed to their sustainability initiatives.

Investors can also assess a company’s commitment to sustainability by reviewing its annual sustainability report, which also covers other aspects such as corporate governance.

Investors can access ESG ratings through various platforms, such as The Morningstar Sustainability Rating, so they can make a more informed choice.

For new investors or those who prefer not to do in-depth analysis, sustainable ETFs covering multiple geographic regions in APAC are also available on SGX.

Some of the available ETFs listed in SGX are Lion-OCBC Securities Singapore Low Carbon ETF (SGX: ESG) for Singapore or CSOP Low Carbon ETF (SGX: LCS) covering the APAC region.

There are also popular ESG ETFs abroad.

Some examples include iShares ESG-conscious MSCI USA ETF (NASDAQ: ESGU) and Vanguard ESG US Stock ETF (NYSEMKT: ESGV), which provide exposure to US equities with strong ESG practices.

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Disclosure: Aw Kai Rui does not own any of the stocks or ETFs mentioned in this article.

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