Family Offices: ESG-Investing Awareness & Reporting
In recent years, the topic of Environmental, Social, and Governance (ESG) issues in Singapore have shifted to something that was once niche to a trend that can be seen across modern investment portfolios. The whooping number on the so-called impact investing can be translated into the realisation of the coming-of-age investors and next generation wealth owners about the importance of investing in businesses that have a positive impact on society and the environment.
While the goal of investing in ESG does not diminish the interest in generating financial returns, more businesses don’t seem to want to miss out on creating positive social or environmental outcomes at the same time. The same can be said for family offices in Singapore, which in recent years have seen progressive shifts towards ESG impact investing. Family offices are private wealth management entities that cater to high-net-worth families or individuals and are responsible for managing the family’s wealth across generations.
ESG Reporting: Popularity & Frameworks
There are several notable reasons why ESG investments gained traction among family offices in Singapore recently. Family offices are becoming more aware of the potential risks associated with investing in companies that have poor ESG practices. This can lead to reputational damage and eventually financial losses. By ingraining ESG principles and considerations into their investment strategies, family offices can reduce these risks and ensure that their investments are sustainable in the long term.
In addition to that, ESG-focused investing has been shown to generate attractive returns. Studies in recent years have found that companies applying ESG practices tend to outperform those that lack focus on the subject. By investing in companies with strong ESG practices, family offices can potentially generate higher returns while also contributing to giving positive outcomes to the society.
As family offices start to realise that ESG issues can have a significant impact on their financial performance and reputation, ESG reporting is becoming an important consideration. To guide their ESG reporting strategy, family offices can use various ESG reporting frameworks, such as the Global Reporting Initiative (GRI) Standards, Sustainability Reporting Guidelines (SRG), United Nations Sustainable Development Goals (SDGs) and Task Force on Climate-related Financial Disclosures (TCFD).
- Global Reporting Initiative (GRI) Standards
The GRI Standards are a widely recognised framework for sustainability reporting that provide guidelines on ESG disclosures. The GRI Standards cover a range of ESG issues, including governance, ethics, human rights, labour practices, environment, and social issues.
- Sustainability Reporting Guidelines (SRG) by the Singapore Exchange (SGX)
The guidelines were introduced in 2016 as an effort to encourage publicly listed companies in Singapore to disclose their ESG performance. This resulted in the requirement for all listed companies to adopt a “report or explain” approach. The guidelines cover a wide range of ESG issues, including climate change, human rights, and supply chain management.
- United Nations Sustainable Development Goals (SDGs)
The SDGs are a set of 17 global goals adopted by the United Nations in 2015 to address social, environmental, and economic challenges.
- Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD was established by the Financial Stability Board to provide a framework for companies to disclose climate-related risks and opportunities. The TCFD framework covers four areas: governance, strategy, risk management, and metrics and targets.
By considering ESG reporting, family offices will be able to identify and prioritise ESG issues that are critical to their business. Undoubtedly, this will also be useful to help them track their progress towards achieving sustainability goals. By using these frameworks, family offices can also create long-term value for their shareholders, employees, and other stakeholders.
New Tax Incentives for Single Family Offices
A recent effort to encourage single family offices to deepen their investment in local Singaporean companies is taken by the Monetary Authority of Singapore (MAS) through its representative Mr. Alvin Tan, the Minister of State. He shared that MAS has continuously ensured the relevancy of fund tax incentive schemes and it has come up with the raised minimum criteria for single family offices. They perform this by “(i) increasing hiring requirements and (ii) introducing a new requirement for family offices to invest at least 10% or S$10 million of their assets (whichever is lower) in local investments.”
In addition to the raised criteria, MAS, Singapore Economic Development Board and Enterprise Singapore are also actively putting the effort through creating platforms to connect local companies with investors and supporting the Wealth Management Institute’s Global-Asia Family Office Circle, which acts as a platform for members to share best practices on management of wealth and co-investing which can help local companies in the nation flourish.
With the supportive environment coming from wealth-owners, ESG-focused businesses and the Singaporean government, it is not a big surprise that family offices are leading the way in ESG-investing in the country.
What ESG-Investing Means for Forbis
For Forbis Group, investing in ESG is not merely creating a positive impact on the environment. For us, it also means investing in a workplace that treats employees well, maintaining a diverse and inclusive workforce, and performing accountable and transparent governance practices. We consistently assist our clients to build up their ESG reporting and practices through our advisory services. We are also a proud member of RaISE Singapore which supports social enterprises.