Transitioning towards Sustainable Investing – ESG Funds
September 17, 2021
In early September 2021, Mr Ravi Menon, managing director of the Monetary Authority of Singapore (MAS), announced that the Authority will set out new disclosure standards by early 2022. It aims to regulate companies that are offering Environmental, Social and Governance (ESG) funds in the market. The implementation of enhanced disclosure standards strives to control the investment direction of an ESG fund and identify whether or not it is aligned with the fund’s investment objectives.
According to The Business Times, the lack of a single established disclosure standard may increase the risk of “greenwashing”. Greenwashing refers to the corporate wrongdoing in providing misleading information that deceive consumers into believing that the products are environmentally sustainable. These fund managers may intentionally or unintentionally engage in greenwashing when they put the pursuit of profits ahead of the stakeholders’ interests; or when they simply do not have sufficient knowledge about sustainability and ESG practices.
In addition, an HSBC survey revealed that while a majority, or 80% of Singapore investors have a positive attitude towards ESG issues, the adoption of ESG investing are lagging behind as there is only a quarter of their investments involving ESG integration. In fact, limited knowledge and understanding among investors is one of the major barriers for sustainable investing with around 58% of Singapore investors agreed that they do not know how to approach ESG funds and investments effectively.
Hence, the establishment of a more stringent disclosure requirements by the MAS can act as a guiding compliance framework for fund managers to evaluate their ESG processes and at the same time enable investors to make an informed decision with adequate information in hand.
Conclusion
In order to mitigate the risk of greenwashing and tackle investors’ reluctance to embrace ESG investing due to limited exposure, the disclosure standards will require the ESG fund managers to include the fund’s investment processes, risks and limitations associated in their ESG-related disclosures. By providing a clear overview of the investment objective and approach, it can help to promote greater transparency and bridge the expectation gap between investors and fund managers. When the investors’ awareness and confidence towards ESG investing improves, they will become more willing to invest in ESG products that can make positive impacts to society.
Be an early adopter of ESG investing and embrace the change today!
How we can help
While moving towards a more sustainable economy, Alder helps integrate the ESG framework into your business. Our services include:
- Assisting to set up ESG frameworks
- Providing support on ESG reporting
- Providing ongoing ESG advice and support
- Facilitating effective communication of the company’s ESG approach with internal and external stakeholders
- Reviewing and rating the existing governance framework
Reference Materials
Choy, N. (2021). ‘80% of Singapore investors believe in ESG, but only a quarter take action: survey’, The Business Times, 15 April. Available at: https://www.businesstimes.com.sg/banking-finance/80-of-singapore-investors-believe-in-esg-but-only-a-quarter-take-action-survey
Lee, J. (2021). ‘New disclosure standards for Singapore retail ESG funds due early 2022: MAS’, The Business Times, 8 Sept. Available at: https://www.businesstimes.com.sg/banking-finance/new-disclosure-standards-for-singapore-retail-esg-funds-due-early-2022-mas
Recommended for you
In today’s competitive business world, key stakeholders and investors have become increasingly concerned about the sustainability strategies of a company.
In recent decades, more frequent and intense climate-related scenarios such as extreme weathers, rising sea levels are hitting the headlines. It raises public awareness about the environmental…