Sustainable returns

People want a financially secure future, but not at a cost to the planet or society

The sustainability trend is shaping the business and investment landscape. From climate change to the Covid-19 pandemic, the interest in environmental, social and governance (ESG) issues is now at the forefront of everyone's mind -- from consumers to investors.

In 2015, Sustainable Development Goals were adopted by the United Nations to achieve a sustainable future -- a mission set to be accomplished in 2030. The significance in building sustainable and resilient business models has become a pressing concern that businesses globally have responded to. More and more, companies are changing their conduct to mitigate their environmental and social impact.

Sustainable practices have proven to be beneficial for companies, with those adopting the practices seeing improved business performance and an increase in customers, among other benefits. Nike, for example, has integrated recycled materials into 76% of its products, reducing waste by 1,500 tonnes per year. This has resulted in lower production costs. Microsoft and Adobe, on the other hand, have promoted gender equality and workforce diversity in their bid to adopt socially responsible practices, and thus are more inclined to attract consumers and businesses that share the same values. Additionally, the transition to a greener economy is generating sustainability-related jobs.

The demand and expectation of consumers are evident. According to the UOB ASEAN Consumer Sentiment Study 2021, more than half of Thai people are inclined to support brands with sustainable practices, even if it means they have to pay more.

Investors, too, are searching for potential investments in companies that prioritise sustainability. And this may be part of the reason why organisations around the world are increasing their effort towards sustainable practices. Investing in products with an ESG focus is today's megatrend, sharpened into focus as the pandemic has made social concerns a priority for all.

"With trillions of dollars being channelled towards investments that consider the impact of business practices on the environment and society, new opportunities have emerged as companies adapt to meet stricter regulatory requirements and consumers' growing awareness of ESG considerations," said Yuttachai Teyarachakul, managing director, country head of Personal Financial Services, UOB Thailand.

"As the world grapples with the social, health and economic challenges caused by the Covid-19 pandemic, investor's awareness of, and demand for, sustainable business models is becoming more prevalent."

The interest in sustainable investing is growing in Asia. The UOB study has found that more than nine in 10 Thai people foresee sustainable investments to become more common in the next three to five years. Twelve percent of those surveyed have already incorporated sustainable investments among their portfolios. Additionally, if it matched their risk appetites, 26% considered this type of investment.

Globally, the Allianz Global Investors' Institutional Investor Survey in 2019 also found that 71% of institutional investors expect to integrate ESG into their process by 2030.

But the investors' shift in focus towards ESG is to be expected. Environmentally-sustainable projects tend to carry lower risks. Companies with sustainable projects are able to borrow at lower interest rates, and potentially this would mean higher returns for shareholders.

"By incorporating ESG factors into investment decisions, investors have the assurance that the companies they are invested in are more likely to generate long-term growth and profits," said Yuttachai.

Sustainable investments do carry some risks, as with all investments. Companies starting out on their ESG trajectory may need to invest significantly to alter their business practices to meet consumer's higher expectations, which may disrupt their immediate cash flow and affect long-term profitability. Greenwashing is also another concern in which businesses provide misleading information about the impact of their environmental policies and initiatives. Investors are advised to learn about a company's ESG practices in-depth before making their decisions.

Investors may consider investing in funds managed by professionals as an alternative. The United Sustainable Equity Solution Fund (USUS), for example, invests mainly in foreign mutual funds with a policy to invest at least 70% in global equity markets of developed countries that have passed the Sustainable and Responsible Investment Strategy (SRI Strategy)'s criteria in environmental, social, human rights and good governance policies. This fund is suitable for medium- to long-term investors and with a moderate risk appetite. There is also the United Sustainable Equity Solution Super Savings Fund (USUS-SSF) for those who can hold their investment for no less than 10 years, and the United Global Innovation Fund RMF (UNIRMF) for those who can hold their investment until they are 55 years old and for no less than five years.

The United Sustainable Credit Income Fund (USI) suits investors who expect higher returns than deposits and accept returns that may be lower than stocks, and also wish to diversify their investments abroad.

In the long run, companies with sustainable business models and commitment to sustainability will potentially be more favoured by both consumers and investors. It suffices to say sustainability is all stakeholders' mutual concern.

Building Sustainable Cities is a 13-part series that explores essential elements & insights on how individuals and businesses can take action to forge a cleaner, greener tomorrow in collaboration with UOB Thailand. You can view the whole series here

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