Interest in ESG funds balloons; sector gets boost from fintech solutions


THE rate of adoption of environmental, social and corporate governance (ESG) took the world by storm in 2021. In recent years, ESG has become more of a reality as more companies announce sustainability initiatives and the number of sustainable investors balloons.

A recent UBS poll found that almost 70 per cent of 200 Singapore respondents were now more interested in investing sustainably than before the coronavirus pandemic, higher than the global average of 59 per cent.

Some ESG-compliant companies have outperformed the market, and have remained strong – contrary to popular belief. An S&P Global study found that 19 of the 26 ESG funds with more than US$250 million in assets under management performed better than the S&P 500 during the pandemic – from March 2020 to March 2021, those outperformers rose between 27.3 and 55 per cent, whereas the S&P 500 increased 27.1 per cent. The world has found a way to both do good and do well.

As ESG funds continue to demonstrate resilience, investors are increasingly shifting their focus towards funds with sustainability-linked mandates. This phenomenon is also occurring in Asia. In 2020, funds with strategies linked to companies’ ESG performance doubled in Asia to US$25 billion from US$12 billion in 2019, according to JPMorgan Chase & Co. On a wider scale, this represents more than a third of all assets under management.

Industry-led change

It would be interesting to see solutions that actively monitor and track a firm’s investment alignment to sustainability goal metrics, which investors can review and confidently validate.

Over the past few years, the Investment Management Association of Singapore (IMAS) has worked with its members to discover fintech solutions that could provide solutions in the ESG sphere, which is still nascent and evolving.

Through IMAS’ Digital Accelerator programme, the association has accelerated startups such as AMPLYFI. The UK-based software company is developing a solution to seamlessly transform vast quantities of ESG data into easily discernible and useful visualisations, to provide end-investors better understanding of companies’ ESG investing processes and outcomes. AMPLYFI was accelerated by IMAS member abrdn.

IMAS member Fidelity accelerated Matter, a Copenhagen-based financial technology startup, to help consolidate sustainability information on its investee companies into a single comprehensive overview.

In the future, the fintech solution could present the ESG impact of Fidelity’s funds in a meaningful format that is intuitive and easy for both end-investors and professional investors to digest.

In September, during IMAS’ FinTech Jam, which showcases innovative fintech solutions, the association showcased three companies that are increasing transparency in ESG reporting by using artificial intelligence (AI), natural language processing (NLP) and risk analytics to process alternative data sources.

  1. CredQuant, a Singapore-based company, produces ESG ratings and research data based on real-time risk assessment of information such as financial and sustainability disclosures; news; macroeconomics; geopolitics; industry trends; and market sentiment.
  2. SESAMm, headquartered in France, provides artificial intelligence-powered analytical software for investment managers and banks to crunch through large data sets and analyse text to identify investment opportunities.
  3. OneConnect, a Singapore-based Fintech, has developed an ESG management platform and ESG dataset on all companies listed in China.

Level of standardisation

As more asset managers leverage tech solutions to make ESG reporting more accurate, transparent and efficient, they are also trying to bring a certain level of standardisation into ESG reporting. By harnessing alternative data sources in ESG reporting, these asset managers are working to improve transparency in a historically opaque market.

Regulatory bodies, too, are introducing guidelines and frameworks for ESG reporting to help investors be better informed on ESG funds.

For example, in December 2020, the Monetary Authority of Singapore issued its guidelines on environmental risk management. In March 2021, the EU Sustainable Finance Disclosure Regulation became applicable. These are all major steps forward in the push for ESG adoption and the standardisation of sustainability-related reporting.

As technology transforms the ESG reporting space by enabling companies to collect new data and analyse it more effectively, it is essential for companies to recognise the opportunities and platforms that allow them to differentiate themselves.

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