Impact investing is beginning to pick up steam with several well-known ETFs now available for retail investors. Here’s how you can more easily invest to make a difference in ways that matter to you.
With global temperatures set to once again break new records this year, it can feel like no one cares about the state of the world.
But judging by recent trends in the environmental, social and governance (ESG) sector – of which climate change is just a part – investors aren’t content to take things lying down.
Let’s take a look at some figures. According to PwC, in 2021, global ESG assets under management (AUM) was estimated to be US$18.4 trillion.
This figure is expected to grow to US$33.9 trillion by 2026, making up 21.5% of total AUM – globally.
Other estimates point to an even larger figure. Bloomberg expects ESG assets to reach US$53 trillion by 2025, more than a third of global AUM.
These are some pretty inspiring numbers, even more so when you consider that the charge is being led by institutional investors – traditionally the movers and shakers of investment markets.
ESG investing is no longer niche, and through impact investing, investors are successfully challenging the traditional notion that you can either invest for profit or to do good, but not both at the same time.
Looking for a safe way to grow and protect your wealth? Consider a priority banking relationship, which provides you with access to a dedicated Relationship Manager to manage your wealth, and preferential interest rates for your banking needs.
🪙SingSaver Cash Quest🪙: Get 2x chances to win S$50,000 when you apply for participating Priority Banking products. Apply for multiple products to increase your chances! Valid till 22 December 2024. T&Cs apply.
SingSaver Exclusive Offer: Get 40,000 Max Miles (worth a one-way Business Class to Japan) or an Apple Bundle: Apple Watch Series 10 (42mm) + AirPods 4 with Active Noise Cancellation (worth S$848) or S$800 cash via PayNow when you successfully apply for a Citigold account and make a S$250,000 deposit within 3 months of account opening and maintain these funds until gift fulfilment. Also, apply through SingSaver and enjoy up to 3% p.a. on a 3-month SGD Time Deposit (equates to S$3,875 cash reward!). Valid till 30 November 2024. T&Cs apply.
Plus, get additional welcome rewards on top of the above offer (T&Cs apply):
- Get additional S$500 Cash Reward from Citibank when you apply for a Citibank Mortgage loan with min. loan size of - S$800,000 within 3 months of account opening
- Get additional S$250 Cash Reward for every S$50K purchase of investment and/or insurance from Citibank
- Get additional S$100 Cash Reward from Citibank when you complete an Investment Risk Profile and Fact Find
- Get additional S$100 Cash Reward from Citibank when you hold a valid Primary Citibank Credit Card
Impact investing, ESG and socially responsible investing – what’s the difference?
Impact investing
Impact investing may be understood as the deliberate effort to make a positive impact in the world by choosing to invest in companies, products or services that produce a tangible social good.
Unlike philanthropy, which has no expectation of financial returns, impact investing takes financial returns into account, although the emphasis may be secondary in some cases.
ESG investing
ESG investing may be considered as one of two approaches to impact investing.
In ESG investing, the idea is to invest in companies that have a lesser negative impact, as indicated by their ESG scores. This doesn't necessarily mean that your investments are, say, completely carbon-neutral, although the companies in your portfolio may be the least polluting among their peers.
However, due to the lack of standardisation in how ESG ratings are calculated, and what they actually mean, ESG investing is considered by some to be problematic.
Related to this topic: 5 Best Sustainable Investments In Singapore
Socially responsible investing (SRI)
SRI follows largely the same lines as ESG investing, but goes one step further to exclude or include companies on specific ethical considerations.
For instance, an investor that opposes war may exclude an ETF that owns stocks in weapons manufacturers. Meanwhile, someone that believes in gender equality may want to actively invest in entities that work to advance the cause.
Some candidates SRI practitioners may avoid include:
-
Alcohol manufacturers
-
Gambling providers
-
Firearms and weapons manufacturers
-
Tobacco producers
-
Marijuana distributors
-
Entities with a record of human rights and labour violations, and environmental damage
As you can see, the lines are quite blurry between impact investing, ESG investing and SRI. Retail investors further face transparency issues, as ESG ratings may not always paint a complete picture.
Rooting out specific companies on moral or ethical grounds may require a fair amount of in-depth research (and probably running into more conspiracy theories than is safe for your mental health).
Thankfully, it is getting easier for retail investors seeking to do good while making a healthy return. While impact investing started off as a niche among the rich elite, increasing demand from the wider market has fostered greater variety in impact investing products.
Related to this topic: How To Balance ESG Investing in Your Investment Portfolio
🪙SingSaver Cash Quest🪙: Get 5x chances to win S$50,000 when you apply for participating Online Brokerage Accounts. Apply for multiple products to increase your chances! Valid till 22 December 2024. T&Cs apply.
SingSaver Exclusive Offer: Open a Webull account and fund a minimum of USD 2,000 to receive a S$120 Lazada voucher. Fund USD10,000 to get a Hinomi H1 Classic V3 Ergonomic Office Chair With Headrest) (worth S$659) or a Dyson Micro 1.5kg Vacuum (worth S$599) or a Nintendo Switch OLED (worth S$549) or an Apple Watch SE (GEN 2) GPS + Cellular 44mm (worth S$459) or S$400 Cash. Valid till 30 November 2024. T&Cs apply.
How retail investors can participate in impact investing
Impact-focused ETFs
Exchange-traded funds (ETFs) are a popular investment product that track the performance of a basket of underlying assets. Thus, you can find ETFs of every imaginable variety, including several that cater to the aspirations of impact investors.
As impact investing can mean different things to different people, based on your personal beliefs, concerns and preferences, it is helpful to first define what’s important to you, and what causes you wish to support.
Thereafter, browse lists of impact-focused ETFs reviews and recommendations to see which ones you should add to your portfolio. To help you get started, we’ve picked out 10 popular impact investing ETFs.
Fund name |
Category |
Expense ratio (%) |
Fidelity Water Sustainability |
Natural resources |
0.95 |
ALPS Clean Energy ETF |
Renewable energy |
0.55 |
SPDR Kensho Clean Power ETF |
Renewable energy |
0.45 |
SPDR SSGA Gender Diversity ETF |
Corporate gender diversity |
0.20 |
Humankind US Stock ETF |
Companies with greatest potential to do good |
0.11 |
VanEck Environmental Services ETF |
Waste management, recycling, environmental consultancy |
0.55 |
Etho Climate Leadership US ETF |
Companies with least carbon emissions in their industries |
0.47 |
CCM Core Impact Equity Fund |
Companies with proven or best-in-class sustainable practices |
1.97 |
Impact Shares NAACP Minority Empowerment ETF |
Companies with strong racial and ethnic diversity policies |
0.49 |
Goldman Sachs JUST US Large Cap Equity ETF |
Companies with just business behaviour and fair practices and policies |
0.20 |
🪙SingSaver Cash Quest🪙: Get 5x chances to win S$50,000 when you apply for participating Online Brokerage Accounts. Apply for multiple products to increase your chances! Valid till 22 December 2024. T&Cs apply.
SingSaver Exclusive Offer: Open a Tiger Brokers account and fund a minimum amount of USD 1,000 to receive a Xiaomi Robot Vacuum E5 (worth S$199) or a Stryv Pro Styler (worth S$169) or a SONY WF-C510 Wireless Earbuds (worth S$149) or an Apple Bundle: Apple Magic Mouse + Air Tag (worth S$145.80) or a S$100 Lazada Voucher or a S$100 e-Capita Voucher. Valid till 10 November 2024. T&Cs apply.
Peer-to-peer lending
If you are looking for a more direct way to make the impact of your investments felt, peer-to-peer lending may be of interest to you.
Peer-to-peer lending has actually been around for quite a while now. The idea is for investors to lend small sums of money that are pooled together as business loans and offered to those who need them.
For example, you could invest in a small business loan, putting in S$2,000 to help an entrepreneur start up their business. When the loan is repaid, you will get back your principal, with interest.
There are two things you should note. One, like with any investment, peer-to-peer lending involves risk, up and and including losing your entire capital.
Two, peer-to-peer lending does not guarantee that the businesses you lend to will follow your (or any) ESG or sustainability preferences.
In that sense, peer-to-peer lending may not fully meet your criteria of “doing good for the planet” with your investment.
Read these next:
Best Ways to Grow Your Wealth Through Priority Banking
What are Family Office Services, and What Type of Investors are They Suited For?
Going Green: What Types Of Ethical Investments Can You Partake In?
Take This Before You Go: A Must-Read Guide For Budding Investors
Similar articles
Ethical Investing: Can You Make Money From It?
How To Make Investing Interesting (And Work For You)
Going Green: What Types Of Ethical Investments Can You Partake In?
Best US Exchange Traded Funds (ETFs) To Invest In (2021)
How To Balance ESG Investing in Your Investment Portfolio
How To Diversify Your Investments With Fractional Shares In 2023
Grow Your Wealth Mindfully: Everything You Need To Know About ESG Investing
Guide to Value Investing, and Why You Should Consider Value ETFs