ESG Investing in Singapore: A Guide for Beginners

What are ESGs?

As mentioned above, ESG stands for environmental, social, and governance. Here’s what each of the three factors means, but keep in mind that they occasionally overlap:

• Environmental: The most clear-cut of all three factors refers to how eco-friendly a company is. For example, how well is it managing its waste products? To what extent is it contributing to deforestation? How severe are its greenhouse gas emissions?

• Social: This refers to a company’s internal and external relationships. For example, how committed is it to customer satisfaction? On the flip side, does it engage its own employees well? How about ensuring diversity when hiring?

• Governance: This factor judges how impartially a company is run. For example, does it compensate executives fairly? How diverse is its board of directors? And most importantly, does it engage in bribery, corruption, and other illegal business practices?

What is ESG investing?

ESG investing is a form of socially responsible investing that takes into account the aforementioned three factors when you select an investment product. To help investors make informed decisions, firms like MSCI, Sustainalytics, and S&P Global Ratings assign standardised ESG scores to publicly listed companies, providing a way to assess their performance in these key areas. This means that investors can use these scores to evaluate and compare companies based on their ESG performance alongside traditional financial metrics.

>> Ready to start investing? Learn about the best-performing ESG ETFs and cheapest ESG ETFs for February 2025

Why should I create an ESG investment portfolio?

Aside from the ethical considerations of aligning your investments with your values, people choose to have an ESG portfolio because of the potential for financial benefits, such as:

High-return potential

Some studies suggest that companies with strong ESG practices may outperform their peers over the long term, as they are often better managed, more innovative, and more resilient to various risks, including regulatory changes and reputational damage.

In recent years, ESG companies and funds have given their non-ESG peers a run for their (literal) money, demonstrating competitive financial performance. Take the 19 ESG ETFs and mutual funds that outperformed the S&P 500 from 5 March 2020 to 5 March 2021, for instance.

During that year-long stretch, the S&P 500 grew by an impressive 27.1%, showcasing the overall market's strength. However, these 19 ESG ETFs and mutual funds saw even more substantial gains, with returns ranging from 27.3% to 55% during that same period, indicating the potential for superior performance.

These weren’t merely flashes in the pan either, with the top-performing Parnassus Endeavor Fund (PARWX) still charging ahead of the S&P 500 several months later, demonstrating sustained outperformance.  

Creating an ESG investment portfolio allows you to align your assets with your beliefs while also potentially avoiding any financial issues that might arise from companies failing to adhere to ESG principles, such as environmental disasters or corporate scandals, which can lead to significant financial losses.

>> MORE: What types of ethical investments can you partake in?

Lower risk

Companies adhering to robust ESG principles may face fewer regulatory fines, avoid costly lawsuits, and mitigate the risk of reputational damage, all of which can contribute to more stable and predictable long-term financial performance.

Volkswagen’s shareholders will wholeheartedly agree with this notion, as the company’s stock value took a full six years to recover after a devastating 2015 emissions scandal largely attributed to poor corporate governance and a lack of ethical oversight.

Comparing ESG investing vs. socially responsible investing vs. CSR

These concepts are all quite similar and often used interchangeably in the same conversation, especially when discussing ethical investments and sustainable business practices, but there are important distinctions between them, and it’s essential to know the difference in order to know what you’re investing in and ensure that your investment strategy truly aligns with your specific values and objectives.

Here’s a breakdown of the key distinctions between these three related but distinct approaches:

ESG Investing: Focuses on integrating ESG factors into financial analysis and investment decisions to enhance returns and manage risks.​

Socially Responsible Investing (SRI): Involves selecting or excluding investments based on ethical guidelines and personal values, often employing negative screening to avoid certain industries.​

Corporate Social Responsibility (CSR): Refers to a company's initiatives to assess and take responsibility for its effects on environmental and social well-being, often extending beyond regulatory requirements.

To make it clear how these are different, consider a practical example: A company might have a strong and well-publicised CSR programme, demonstrating a commitment to community engagement and environmental stewardship, but still have poor governance practices internally, such as a lack of board diversity or excessive executive compensation, which would make it less attractive as a good ESG fund.

Conversely, an SRI investor might choose to avoid investing in fossil fuel companies altogether, regardless of their ESG scores, based on deeply held ethical beliefs about climate change.

Examples of ESG investments

There are various ways to engage in ESG investing. You might choose an ESG fund, or you could opt for stocks with favourable ESG scores. Here are some ESG investment options from our list of best-performing ESG ETFs and more:

• iShares ESG Aware MSCI EM ETF

• Nikko AM SGD Investment Grade Corporate Bond ETF

• ABF Singapore Bond ETF

• Axis Bank Ltd

• Infosys Ltd.

Types of ESG investments available in Singapore

There are various types of ESG investments available to investors in Singapore, allowing for a range of investment strategies and risk tolerances.

ESG stocks

ESG stocks are shares of publicly listed companies that meet specific environmental, social, and governance criteria, allowing investors to directly support businesses whose practices align with their values and contribute to positive change through their investments.

ESG Exchange-Traded Fund (ETF) 

An ESG exchange-traded fund (ETF) is an investment fund traded on stock exchanges, comprising a diversified basket of ESG-rated stocks and offering investors a convenient and cost-effective way to gain broad exposure to the ESG investment space.

What ESG investments can I purchase?

Because ESG investing is a strategy rather than an entirely separate asset class, you can expect the same variety of products as ‘regular’ investing. These include stocks, bonds, ETFs, mutual funds, and more. This is a huge boon because you can simply integrate ESG investment products into your existing portfolio rather than creating an entirely separate one.

Stocks

As mentioned earlier, there are several firms that assign ESG scores to publicly listed companies across the globe. The following businesses are just a sample of those that have sterling ESG credentials while being impressive stock picks in their own right. However, do note that market conditions aren’t static, so do your due diligence before investing.

Atlas Arteria Ltd.

Sustainalytics Score	Morningstar ESG Risk Rating
7.2	5/5

Atlas Arteria is a global investor in toll roads, formed from the 2010 reorganisation of Macquarie Infrastructure Group. Its primary holding is a 30.82% share in Autoroutes Paris-Rhin-Rhone (APRR), which operates over 2,300 kilometres of French motorways. The firm also holds full ownership of the Dulles Greenway and a 66.67% stake in the Chicago Skyway, both located in the United States.

Dai Nippon Printing Co., Ltd.

Sustainalytics Score	Morningstar ESG Risk Rating
6.1	5/5

Dai Nippon Printing Co Ltd leverages its printing and information expertise across diverse sectors. Its operations span Life & Healthcare (including pharmaceuticals and packaging), Electronics (focused on films and displays), and Smart Communication. The latter, its largest revenue driver, encompasses imaging communication, information security solutions like BPO and smart cards, and content & XR communication.

Dexus

Sustainalytics Score	Morningstar ESG Risk Rating
5.5	5/5

Dexus owns, manages, and develops a portfolio of office and industrial assets, with roughly half situated in Sydney. The office portfolio generates nearly two-thirds of group earnings, while industrial assets account for about 15%. Dexus also manages third-party assets and operates a funds management platform with AUD $40 billion in funds under management as of 30 June 2024, spanning various sectors. Management is internalised, unlike some peers.

ETFs

Nikko AM SGD Investment Grade Corporate Bond ETF

Morningstar Medalist Rating	Morningstar ESG Risk Rating
5/5	4/5

The Nikko AM SGD Investment Grd Corp Bd ETF presents some features that may appeal to sustainability-conscious investors, although certain factors warrant consideration. While its ESG risk exposure is relatively low within its Asia Fixed Income peer group, earning a Morningstar Sustainability Rating of 4 globes, it lacks a specific ESG-focused mandate. This absence of a dedicated ESG mandate means its potential to actively drive positive ESG outcomes may be less pronounced compared to funds with that explicit objective.

Phillip SGX APAC Dividend Leaders REIT ETF

Morningstar Medalist Rating	Morningstar ESG Risk Rating
4/5	5/5

The Phillip SGX APAC Div Leaders REIT offers several attractive qualities for sustainability-minded investors. It boasts a Morningstar Sustainability Rating of 5 globes, signifying low ESG risk compared to its Real Estate Sector Equity peers. Notably, the fund's low Morningstar Portfolio Carbon Risk Score (6.80) and minimal fossil fuel exposure earn it the Morningstar Low Carbon Designation, suggesting that portfolio companies are generally aligned with a low-carbon transition.

SPDR STI ETF

Morningstar Medalist Rating	Morningstar ESG Risk Rating
4/5	4/5

The SPDR® Straits Times Index ETF presents several potentially appealing features for sustainability-focused investors. It exhibits relatively low ESG risk compared to its Asia ex-Japan Equity peers, securing a Morningstar Sustainability Rating of 4 globes. Its strengths include a low Morningstar Portfolio Carbon Risk Score (9.86) and very limited fossil fuel exposure, granting it the Morningstar Low Carbon Designation. Furthermore, portfolio holdings are free from high or severe controversy involvement, indicating alignment with a low-carbon economy.

Other ESG investment products

For individuals who are too busy juggling work and personal matters, you’ll be happy to know that robo-advisors have dipped their toes into the ESG investing waters. On 17 March 2021, Endowus launched an ESG solution comprising six actively managed funds and the option for investors to customise their portfolios. You can select a 100% equity or fixed income portfolio or have one that’s a blend of the two asset classes.

Endowus might be the first robo-advisor in Singapore to grant investors easy access to an ESG portfolio, but don’t expect it to be the last. Syf, for one, offers an ESG portfolio but only to its Private Wealth clients for now. Likewise for Kristal.AI, who touts complete customisation for its own Private Wealth clients. Who’s to say that things won’t change in the near future?

How to start ESG investing in Singapore

Whilst it may initially seem complicated, with proper research, due diligence, and a clear understanding of your investment goals, you can confidently begin ESG investing in Singapore. Here’s a structured approach to get you started:

1. Make the choice: DIY or professional assistance

To start your ESG investment journey, you need to decide whether you want to manage your ESG investing yourself through self-directed research and trading or seek professional financial help and guidance from a qualified advisor.

Finding your own ESG investments

Conducting thorough research is essential for successful ESG investing. In Singapore, new investors can access a wealth of resources, including the Singapore Exchange (SGX), which provides valuable information on ESG-related securities, sustainability reporting guidelines, and listed companies' ESG performance.

Using advisors to build your ESG investment portfolio

Consulting experienced financial advisors who are familiar with the local market and have expertise in ESG investments can be highly beneficial, especially for those seeking tailored advice and complex portfolio construction. 

Alternatively, robo-advisors, which offer automated investment management based on algorithms, are also emerging as a convenient and cost-effective option for ESG investing, although the level of personalisation may vary. However, it's important to be aware of potential advisor fees, whether for human advisors or robo-advisor platforms, and ensure that the chosen advisor or platform possesses genuine and demonstrable expertise in ESG investment strategies.

>> MORE: Best robo-advisors in Singapore: top picks for 2025

2. Learn about ESG criteria

Determining which specific ESG factors are most important and relevant to your personal values and investment objectives is crucial for aligning your portfolio with your beliefs. In Singapore, the Monetary Authority of Singapore (MAS) has issued guidelines and regulations for ESG funds, which can help investors understand how different funds align with various ESG criteria and assess their sustainability claims.

3. Select ESG investments

The final and crucial step is carefully selecting specific ESG investments that align with your identified ESG criteria and financial goals. In Singapore, there are a growing variety of ESG investment options available, including individual stocks, diversified mutual funds, and specialised ESG exchange-traded funds. For instance, platforms like Syfe offer a dedicated ESG & Clean Energy portfolio, providing investors with convenient exposure to companies with strong ESG practices.

What are the risks of ESG investing?

ESG investing has had its fair share of detractors over the years, and it’s hard to fault them. Firstly, each firm listed above has a different methodology when it comes to granting ESG scores to companies or funds. As shown, this can create discrepancies and cause investors to spend even more time to determine whether a product is truly aligned with their beliefs.

Secondly, zeroing in on investment products with stellar ESG ratings will cause you to miss out on opportunities to grow your wealth at a quicker pace. Although you can compromise by simply integrating ESG investment products into your existing portfolio, some would say that defeats the purpose of this strategy entirely.

Finally, research has shown that companies and funds being ESG advocates might not necessarily translate into better returns. However, the paper also conceded that firms with poor ESG scores do tend to perform poorer than the market. Furthermore, it also stated that there is not enough data to work with right now since ESG investing is a recent trend.

Making your money work for good with ESG investments

There’s no denying that ESG investing is popular, given how much money has been poured into sustainable funds and companies in recent years. Investors are voting with their dollars as they aim to align their portfolios with their ethics and morals. And given the spate of incidents revolving around each ESG factor in the past year, why wouldn’t they want to do so?

Fortunately, ESG investing does not require a separate platform or set of tools. Your existing online brokerage account and even robo-advisor will do. It just takes more time and effort to suss out businesses and funds that you resonate with before putting your money down. And if you’re currently engaging a financial advisor, speak to him/her and determine whether there are any suitable products for you.