26-05-2025
Sustainable investing is no passing fad
[SINGAPORE] After moderating a panel discussion recently on sustainable investing, I walked away both reassured and reinvigorated.
The conversation underscored a clear takeaway: While political leadership, especially in major economies, can influence the pace of change, the structural drivers behind sustainable investing remain intact and are increasingly global in scope.
Policy shifts and long-term momentum
Changes in government policy, whether in the US, Europe or Asia, can affect the near-term operating environment for clean energy and sustainability-linked sectors.
For instance, new trade measures and industrial strategies are being implemented in various countries, sometimes introducing complexity for technologies such as solar panels or electric vehicles.
While these may slow near-term deployment and increase costs of clean energy projects, they also underscore just how central sustainability-linked sectors have become to national economic competitiveness and energy security.
Such shifts may lead to greater localisation of supply chains and increased investments in domestic clean energy capabilities, sparking new waves of domestic investments as companies seek to reduce dependency on foreign supply chains.
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This evolution is reshaping but not reversing the global sustainability agenda. In fact, the push for economic resilience and self-sufficiency may ultimately accelerate investments in sustainable infrastructure across the regions.
Large-scale policy frameworks, such as the European Green Deal and the Japan Green Transformation initiative, are funnelling substantial capital into climate-related sectors.
In the US, the Inflation Reduction Act (IRA), is playing a similar transformative role – directing hundreds of billions of dollars into clean energy, manufacturing and climate resilience over the next decade.
With its embedded incentives and bipartisan economic benefits, the IRA is helping to catalyse investments and innovations across both red and blue states, reinforcing the structural shifts underway.
Investors are watching these developments closely, but they are not standing still. Many continue to allocate towards climate and sustainability opportunities based on sound economics, long-term risk mitigation and structural market trends.
Structural drivers are stronger than ever
Urbanisation and population growth are driving global electricity demand, which is expected to double over the next 20 years.
Meeting this demand will require more energy of all types. But renewable energy – particularly solar and wind – stands out as the most cost effective.
Today, solar and wind energy are the cheapest sources of new electricity in most of the world, making it the preferred choice for new capacity, according to BloombergNEF. As a result, global investment in renewables is nearly twice that of fossil fuels.
Another powerful driver is the rapid rise of artificial intelligence (AI).
AI models are extremely energy and water-intensive. For instance, generating a 100-word e-mail with OpenAI's GPT-4 model can consume the equivalent of a 500 ml bottle of water and enough energy to power 14 LED light bulbs for an hour, according to a study conducted by The Washington Post in collaboration with the University of California, Riverside.
As AI adoption grows worldwide, global demand for energy-efficient data centres and low-carbon infrastructure solutions rises.
Sustainability here to stay
Across markets, from Asia to Europe to the Americas, investors are integrating environmental, social and governance (ESG) factors not due to the desire for political alignment, but because the financial materiality of climate risk, evolving regulatory frameworks and consumer preferences are undeniable.
Many companies are also accelerating their own transitions, integrating ESG into their risk management frameworks and net-zero strategies.
Governments are reinforcing this momentum through supportive frameworks. Whether it is the European Union taxonomy and carbon pricing, the Singapore Green Plan 2030, or China's Carbon Neutrality plan, public policies are aligning with long-term sustainability goals. This convergence of public and private capital is a key enabler of the transition.
Sustainable investing has become increasingly accessible as awareness grows and more investment solutions become available. Beyond simple exclusions, investors today are also considering the following approaches to sustainable investing:
ESG integration: Process of considering ESG factors alongside financial considerations in investment decision-making, potentially enhancing the risk-adjusted returns of investments.
Thematic investing: Focused on sustainability-related areas such as renewable energy, circular economy or water solutions. These are often satellite strategies that complement core holdings.
Impact investing: Targeting measurable environmental or social outcomes, such as emissions reduction or biodiversity protection.
Transition alignment: Building portfolios that benefit from the shift to a low-carbon economy, including companies enabling or adapting to the transition.
Aligning with a changing world
For investors looking to begin or deepen their sustainable investing journey, the key is clarity.
Define what you want to achieve – whether it is managing risk, capturing growth or contributing to real-world change. Then choose the right mix of tools, which may be ESG integration, thematic strategies or impact-oriented solutions.
Sustainable investing is not a passing trend. It is a reflection of a world in transition – in our economy, environment and society.
Regardless of political cycles, the transition is underway. Investors who recognise this early will be better positioned for long-term success.
The writer is head of asset allocation at Standard Chartered Bank's wealth solutions chief investment office
