Should you care about ESG

It's a hot topic among investors right now - but what does the acronym really mean? In this first of a two-part series, we explore the impact of social and governance factors in ESG investing.

Do you have a vague idea of what ESG investments but still can’t wrap your head around it? oure not alone: A 2021 survey by Singaporech company Endowus revealed that while 93 per cent of Singaporeans are interested in ESG environment, social and governance), only 28 per cent have taken action and built their portfolios accordingly.

Despite the ubiquity of this acronym, it is still widely misunderstood, not least because there are no global, standardised frameworks in place.

"ESG investing is an investment practice that takes into consideration the impact of investment on the environment and society at large," explains Min Axthelm, director of Investment Research at Endowus.

"Broadly speaking, it looks at how companies treat the environment and key stakeholders from different parts of society. Subsequently, ESG investing avoids irresponsible companies and prefers companies that are responsible corporate citizens." ESG is not corporate social responsibility (CSR), whereby company profits are disbursed for social change.

Instead, ESG is ingrained in the very ethos of the company, and it protects the organisation from potential environmental and social pressures.

As an investor, you essentially vote with your wallet - if you decide to base your portfolio on ESG-compliant companies, you are ultimately rewarding good behaviour, and setting in motion a cycle of positive social change.

While there is much hype surrounding the environment factor of ESG, in the first of our two-part series, we're diving into social and governance, and unpacking what they both entail.

HOW DOES ESG INVESTING WORK?

This means only investing in companies that are driving a positive change, whether they're taking significant steps to reduce their carbon footprint or building a diverse and equitable eco-system via their hiring policies. You can find ESG-linked products within mutual funds, equities and bonds.