Environmental, social and governance (ESG) investing has been on the rise with more emphasis being placed on companies with good ESG scores and ratings, as climate change stands to be one of the challenges of our generation.

In the wake of this, Etiqa has launched the Premier Global Sustainability Equity Fund (PGSEF) - its first ESG fund - which is specially designed to deliver performance through investments in companies whose activities are linked to sustainable themes over the medium to long term.

Chris Eng, chief strategy officer at Etiqa, shares his experience of visiting petrochemical plants in places such as Kuantan in the mid-1990s where the air quality was affected due to flaring. This planted the seed of sustainability in him.

Working as an analyst for the oil and gas and shipping sectors, he was exposed to the increasing demand for renewable energy and the risks associated with fossil fuels.

"Corporations need to deliver profits to shareholders to ensure their sustainability, and some of them do bring good to humanity, but there is an environmental impact," says Eng, who has been with the insurer for more than a decade.

"Investment is an area where you can make a difference. ESG covers quite a broad range of sectors and is a factor that analysts and fund managers increasingly look at."

Companies have evolved from the old days, when the focus was on merely looking good, whereas now there is an in-depth focus on how they affect the environment.

Funds with a sustainability focus took some time to catch up given the low levels of awareness and investors' fear that they will have to accept a lower rate of return in exchange for ESG benefits.

Etiqa has been advocating for change in the investment space by taking slow but sure steps in the right direction. For instance, it took measures to champion change within the company itself by reducing its carbon footprint while committing to its sustainability ambitions.

"What we are doing is coming up with products and services that either encourage sustainability among our clients or reduce our own exposure to the risks of not moving on in our sustainability journey," says Eng.

Investments and funding are crucial to drive the change towards a sustainable future, and as the market has aligned itself to this viewpoint, policyholders and investors are bound to make money in the long run with ESG funds.

PSGEF is the solution for those looking to invest in companies with the best sustainability credits and business fundamentals globally as the trend for ESG funds continues to dominate investment flows, with consumer preferences and public attitudes maturing.

Managed by experienced fund managers, JP Morgan Asset Management or Natixis Investment Managers International, the fund will invest at least 95% in an approved global equity ESG fund and the remainder in cash and fixed deposits.

"What you want is to have a global provider of the fund, and that is why we have brought in JP Morgan and Natixis, because they have the expertise to manage a fund like this given the longer track record of ESG awareness in Europe and the US. It is sufficient in size and liquid enough that you don't have to worry about sharp swings in price," says Eng.

ESG investing, where the consideration of ESG factors are used in the investment decision-making process, creates significant opportunities for those at the forefront of change.

Eng expects ESG funds to outperform in the long run, with PSGEF providing a good opportunity for investors to add to their investment portfolio amid a period of uncertainty, with the fund targeted at those with an appetite for higher risk investment strategies.

"If you look at it from a three- to five-year horizon, investors will make more money from an ESG fund than from a comparable non-ESG fund, thereby making it both a financially rewarding and socially rewarding investment," he says.

"If we look to the future, the awareness of ESG among the younger generation will be higher than the older generation. So, there will be this continued movement of money into ESG funds. The younger generation will avoid putting money into industries that are not deemed to be climate friendly.

"Even if ESG funds do not perform on an short term absolute basis, they will outperform on a longer term relative basis on anything that is not ESG."

The target fund for PSGEF will be chosen from two panels of approved global equity funds that are part of the JP Morgan Global Sustainable Equity Fund (JPMGSEF), which is managed by J.P. Morgan Asset Management or Mirova Global Sustainable Equity Fund (MGSEF), which is managed by Natixis Investment Managers International

Only one of the target funds will be invested in at any point of time, where the best underlying target fund will be selected based on the average rolling three-year fund performance, on the observation date every year. PGSEF will start with JPMGSEF as the underlying target fund.

"We offer it as an alternating fund. After a certain number of years on a rolling basis, if it is underperforming, we can switch to another fund manager," Eng explains.

With a fund size of US$ 261.7 million as of 31 May 2022, JPMGSEF aims to provide long-term capital growth by investing in sustainable companies around the globe that demonstrate improving sustainable characteristics, with effective governance and superior management of environmental and social issues.

JPMGSEF has a clear approach to sustainable investing, where unsustainable businesses and industries are excluded, sustainable leaders are identified and engagement with companies on material issues related to ESG are conducted.

Meanwhile, MGSEF, with its US$ 4,833.11 million fund size as of 31 May 2022, will invest in companies whose activities are linked to sustainable investment themes over a minimum recommended investment horizon of five years, while aiming to outperform the reference index and reinvesting the net dividends.

Being a global equity ESG fund, the key geographical investment areas will be North America and Europe, as well as emerging markets including those in Asia. Furthermore, the fund will look at a diverse range of industries that are not limited to but including financial, healthcare, IT, consumer discretionary and industrial.

In order to ascertain the credibility of the funds, they are awarded the Socially Responsible Investment (SRI) label, which is sponsored by France's Ministry of Economy, Finance and Recovery and is compliant with the European Sustainable Finance Disclosure Regulation (SFDR).

The ESG credibility of the funds are regularly monitored and recognised by internal and external third parties to ensure hot topic issues such as greenwashing are detected as early as possible and dealt with.

Third party service providers are engaged to strengthen the monitoring process and provide ESG scoring for the funds. Both fund managers are signatories to the Principle for Responsible Investment (PRI), which is the world's leading proponent for responsible investments, thus highlighting their commitment to ethical ESG investing.

Investors who are looking for an investment portfolio which is suited for a longer term outlook, should take a look at the opportunities that ESG funds provide amidst the current market uncertainties, especially with the short to mid term outlook. ESG funds provide a safe haven in volatile markets with the added benefit of being able to sustain the outperformance of the past four years.