With a shift in investment trends toward a focus on environmental, social and governance issues, Singapore state fund GIC says it is looking for businesses that have the potential to transition to a more sustainable model.
In an interview with Nikkei Asia, GIC Chief Investment Officer for Fixed Income Liew Tzu Mi, who also chairs its sustainability committee, pointed out every company has “different starting points” in terms of building a business that complies with ESG standards.
“It is not whether the ESG standard is high or low that determines whether we want to invest,” she said. “It is about understanding whether there is any opportunity for transition.”
“If they are willing to work with us, even though the starting point is very low, we very much like to work with that because we see a very positive case coming out from them,” she said.
GIC is one of the world’s biggest institutional investors. Sustainability is a “top management priority,” she said, adding that companies with good sustainability practices will offer “prospects of better risk-adjusted returns over the long term.”
Among ESG goals are cutting carbon emissions, reducing waste, and employing a diverse staff. The pandemic, intensifying climate change and deteriorating race relations in the West over the last 18 months have led to some soul-searching among businesses and investors, leading to a greater focus on trying to attain those ESG goals. In particular, investors and lenders are taking a more stringent view of fossil fuel production.
Some investors may simply divest or pass on investment opportunities in a company with low ESG standards, but this is not GIC’s stance. Liew said constructive engagement was critical. “We believe it is more constructive to actively engage and support companies in their transition towards sustainability rather than adapting a blunt top-down divestment approach,” she said.
Such engagement is even more important for emerging markets, she said, as businesses may find it too expensive to adopt ESG concepts.
For example, in the Philippines, GIC invested 11.88 billion pesos ($230 million) in AC Energy, a power producer under conglomerate Ayala Group, as the company launches more renewable energy projects. Ayala Group had previously said it hoped to close all its coal investments by 2030. Liew said the investment in AC was going to be “very positive for the transition story for Asia.”
She said that GIC’s engagement with companies ranges from conversations with the management to contributions at board meetings and shareholders’ meetings. Some of the areas that GIC is particularly keen to support are the reduction of carbon emissions, compliance with human rights principles and the building of transparent corporate governance structures.
Liew said GIC’s sustainability committee consists of senior leaders from all departments, including investment, risk assessment and even corporate functions. It gathers about once a month to discuss a wide range of topics, including its ESG policies and how it deals with different situations.
GIC does not disclose its total asset value under management. However, it had 39% of its assets in nominal bonds and cash, 17% in emerging market equities, 15% in developed market equities, 15% in private equities, 8% in real estate, and 6% in inflation-linked bonds, as of March 2021.
This article was first published in Nikkei Asia.