With thanks to author Bruce Kohn.
Perceptions that Singapore’s political, cultural, and financial structures are closely aligned to take up, in quick time, global trends that offer an economic and strategic advantage for the city-state are reflected in its performance with corporate adjustment to become more sustainable.
In 2016 the official direction that its corporate sector should recognise in company annual reports their contribution to the amelioration of global threats, approximately 55 per cent of nearly 700 companies listed on the Singapore Stock Exchange did so within two years. Last year 72 per cent completed this. [1]
By comparison, the New Zealand Stock Exchange (NZX) distributed similar guidelines in 2017. Only 38 per cent of New Zealand’s top 50 listed companies provided reporting on environmental, social and governance (ESG) practices within their operations last year. [2] These findings do not include the other 130-odd companies also listed on the NZX.
ESG is the basic style promoted by the NZX and by 2023 the Government hopes to have enacted legislation that will in effect place New Zealand corporates in a similar situation to Singapore regarding annual reporting covering climate change matters. The NZX is consulting on criteria and standards that may best be set under this legislation.
Under ESG, environmental, social and governance practices of investment are considered in the context of material impact on the performance of that investment. The integration of ESG factors is used to enhance traditional financial analysis by identifying potential risks and opportunities beyond fundamental valuations.
Over the longer term, companies performing well on their ESG metrics are considered to have the potential to drive returns on investment and are more likely to offer sustainable products that are authentic.
The NZX updated their guidance note in December 2020 and outlined common factors in the assessment process under ESG include:
Environmental
Social
Governance
The direction that Singapore promotes has an enviable track record of establishing trends, on this side of the world, that would be acceptable to New Zealand corporates.
Investors in both countries have a choice in determining which stocks they may choose to support with their investments. But the absence of a higher level of climate change reporting by corporates in New Zealand suggests a reluctance to address options of creating longer-term value for their businesses and local investors.
It’s worth reflecting that Singapore’s approach to becoming more socially responsible was endorsed by 33% of the USD51.4 trillion (that’s USD17.1 trillion) total U.S. assets under management last year, according to the U.S. Forum for Sustainable and Responsible Investment.
There are two styles of investing that cater to those investors who want to place their money in shares or funds that reflect their social values, as well as being profitable. SRI - socially responsible investing and impact investing.
SRI embraces actively removing or choosing investments based on specific ethical criteria.
SRI balances profit against principles. An SRI investor actively selects investments according to specific ethical guidelines, by using ESG factors to consider positive or negative aspects of a potential investment. For example, an investor may choose to avoid stocks or managed funds that are engaged in firearms trade, whether manufacturing or supply-based. Other considerations might include association with alcohol or tobacco, gambling, human rights and labour violations, environmental degradation, and affiliation with terrorism. Conversely, they may elect to invest in companies actively focusing on decreasing their carbon emission or contributing to their community.
Companies intent on generating measurable, beneficial social or environmental impacts, alongside financial returns are targeted by impact investors.
Recent U.S. surveys put the value of the impact investing market at about USD715 billion globally [3], with a range of asset classes and regions gaining attention from investors. Examples of corporates benefitting from this approach include producers of “clean” energy – solar, hydro-power – and technology applications that benefit environmental protection and non-polluting waste disposal.
For investors looking to make a choice of which of these two mantras they might follow in choosing where to place their funds there is an issue that closely resembles the perplexities of consumer choice in supermarket purchasing – what is on the label of the range of products on shelves?
On the one hand for the grocery shopper - too much fat? The right vitamin mixes? Unhealthy additives? On the other for the investor – a priority to a good return no matter the conduct of the fund or company? SRI or Impact? How much notice should I take of gender and diversity balance? Is climate change a significant factor in my choice?
Singapore’s corporate take-up of climate change reporting when linked to the scale that ethical investing has built up in the U.S. indicates the trend of investors to support positive impacts on society is here to stay.
While the NZX broadly follows support for ESG, with the ultimate objective of better financial performance, the greater emphasis placed on environmental and social objectives in SRI and impact investing criteria suggests both will be significant in government consideration of the Climate-related Disclosures Bill.
[1] The Strait Times, S'pore companies getting better at sustainability reporting: SGX-NUS review, 20 May 2021
[2] Devon Funds, Better reporting by New Zealand companies needed on climate change, 20 October 2020
[3] Global Impact Investing Network, 2020 Annual Impact Investor Survey, 11 June 2020
