This analysis is by Bloomberg Intelligence Director of ESG Research EMEA & APAC Adeline Diab and Bloomberg Intelligence ESG analyst Conrad Tan. It appeared first on the Bloomberg Terminal.
The 10 MSCI Singapore firms with the best ESG disclosure have delivered an average return that was 8 percentage points higher than the bottom 10 companies over the past three years while exhibiting lower volatility. Size could play a part; the top disclosure scores are skewed toward big caps. New rules making more ESG disclosures mandatory could drive improvements. Singapore Exchange, which doubles as a regulator, leads by example with the most improved disclosure since 2019, while Sea Ltd lags. By sector, real estate falls behind due to weak disclosure on key environmental and governance issues.
Higher ESG disclosure could be linked to returns in Singapore
The 10 companies with the best ESG disclosure generated higher returns than the bottom 10 companies in the MSCI Singapore over the past three years, with an average excess return of 17.3% vs. the index. As a group, firms with better disclosures also appeared less volatile over various time frames.
Average excess return of 17.3% over index
The 10 MSCI Singapore companies with the best ESG disclosures, ranked with BI’s ESG scores, had an average excess total return of 17.3% above the index over the past three years (to March 14, 2023). That was nearly double the 9.3% average excess total return for the bottom 10. The median excess total return for the top 10 was 14.1% versus minus 2.0% for the bottom 10.
The average and median excess total returns for the top 10 were also superior over the past 12 and 24 months. This may partly reflect interest-rate sensitivity of different sectors during a period of rising interest rates, with banks such as DBS Group generally outperforming real-estate and tech firms.
Link with lower volatility
Share volatility may also be linked to the quality of ESG disclosure. The five MSCI Singapore companies with the lowest disclosure scores show greater volatility, with average 30-day volatility of 30.3%, more than double the 14.3% for the top five companies. The gap persists when measured over longer periods, and when the top 10 firms are compared to the bottom 10.
The difference may be partly due to size; of the 20 index members analyzed, we observed a slight tilt toward better disclosures by large-cap companies. The 10 firms with above-median ESG disclosure scores account for 57% of index members’ total market capitalization, and the top five for 38%. This excludes Grab Holdings and Jardine Cycle & Carriage, which haven’t been assigned disclosure scores.
Regulators tighten the screws
Stricter ESG disclosure rules could pressure companies to improve. Singapore has made climate reporting mandatory for listed firms on a “comply or explain” basis for reports published starting in 2023; this will later be tightened to just “comply” for some industries including financials and energy. Regulators have also announced new rules requiring listed firms to disclose the breakdown of pay to their CEOs and directors, and introduced a nine-year hard limit for independent directors on boards of Singapore-listed firms starting in 2025.
For banks, insurers and asset managers, the Monetary Authority of Singapore introduced guidelines on environmental risk management that took effect in June 2022. We expect the new rules to enhance ESG disclosure among MSCI Singapore members.
MSCI Singapore real estate companies show weak ESG disclosure
Real estate lags other MSCI Singapore sectors in ESG disclosure, with just one out of seven firms showing an above-median disclosure score. Disclosure on energy management, water management, climate exposure and pay for performance — key environmental and governance issues — remains weak, highlighting opportunities for targeted efforts to improve.
Which sector lags? Real estate, 16% of index market cap
Real estate stands out with six of the seven companies showing below-median ESG disclosure due to lagging environmental and governance disclosure. Energy management, water management and climate exposure are key issues for the sector, and many firms have yet to show adequate disclosure such as climate scenario analysis of their assets. Mapletree Logistics Trust, CapitaLand Integrated Commercial Trust and Mapletree Pan Asia Commercial Trust also lack governance disclosures that enable investors to assess how well executive pay is aligned with financial performance, compared with City Developments, which has the best overall disclosure in the sector. New rules announced in January 2023 requiring Singapore-listed firms to disclose the breakdown of CEO and directors’ pay starting in 2025 may help.
Bloomberg
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