Issue 150: S-E Asia's ESG indices outperform; Sembcorp builds up regional pipeline
This week in ESG: CGS-CIMB sees structural drivers for ESG investing; Sembcorp in Malaysia-Singapore-Vietnam energy consortium
Sustainable investing
ESG pays off in South-east Asia
Despite a pushback against environmental, social and governance (ESG) principles in the developed West, the sustainability theme continues to present potentially attractive investment opportunities in South-east Asia.
A new analysis by CGS-CIMB shows that a number of well-followed ESG-themed stock indices have been outperforming their vanilla benchmarks since 2022.
From May 2022 to May 2025, the FTSE4Good Asean 5 index of ESG leaders listed in Indonesia, Malaysia, the Philippines, Singapore and Thailand achieved an annualised return of 5.07 per cent. That surpassed the FTSE Asean All-Share index's 1.56 per cent annualised return over the same period.
The Malaysia-only FTSE4Good Bursa Malaysia benchmark's annualised return was 3.46 per cent, more than the 3.10 per cent annualised return generated by the FTSE Bursa Malaysia EMAS index. That outperformance was comparable with Thailand's SETESG index, which lost 6.03 per cent annually on average versus the broader SET 100's steeper 6.41 per cent annual loss.
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CGS-CIMB attributes the outperformance to a structural shift towards integrating ESG into allocation decisions. Institutional investors are embedding ESG principles into their mandates, and regulators are making sustainability disclosures mandatory. The impact of these changes is long-term and widespread.
Furthermore, businesses perceive competitive advantage through ESG-related branding, the firm says. Businesses in South-east Asia are no longer approaching ESG as mere compliance, but as a way to differentiate themselves from competitors.
CGS-CIMB expects South-east Asian ESG to remain an attractive investment theme for a few reasons:
Regional economic growth remains above the global average
Inflation is not a major problem in South-east Asia's key markets
Valuations are still attractive from an income and price upside perspective
Markets are rewarding ESG outperformance and punishing misalignment
Besides CGS-CIMB's report, a considerable amount of recent research has also turned the spotlight on investment opportunities in climate adaptation and resilience, with Singapore sovereign wealth investors GIC and Temasek publishing reports on that topic.
The MSCI Sustainability Institute in April released a report that highlighted investment opportunities in Asian companies that provide resilience solutions against heat. Heat resilience solutions providers are particularly attractive in the universe of climate adaptation and resilience investment plays because their products are likely to draw significant private-sector demand, the MSCI authors say.
A list of example companies that fall within the category of heat resilience solutions providers included SP Group – a leading supplier of district cooling solutions in Singapore – and Keppel – a Singapore-based asset manager with businesses in water treatment and sustainable real estate.
The CGS-CIMB and MSCI reports are examples of a positive trend of investment research focused on ESG in Asia or South-east Asia.
CGS-CIMB explains in its description of its proprietary ESG screening framework that global scoring models face limitations in South-east Asia due to regional circumstances that don't fit with the norms of developed markets where many of these models are developed.
In the same way, it is difficult for most investors to translate ESG investment ideas that originate from outside the region to the regional context. For example, the energy and nature transitions in South-east Asia won't follow the same pathways as those in China or India, or even between countries within the region. Investors also need experts familiar with the region to connect ideas about big ESG trends to actual companies and products that are investable.
Locally relevant research can help to unlock ESG-discerning private capital in South-east Asia. That could, in turn, provide market-based discipline to support better ESG performance among listed companies in the region. Just as growing coconut trees can provide a community with many benefits, nurturing domestic ESG research could help South-east Asia's market regulators to boost interest in their markets and to improve ESG performance at the same time.
Sustainable business
Sembcorp's growing South-east Asia pipeline
Gas and renewable energy group Sembcorp Industries has been busy sowing seeds in South-east Asia so far in 2025.
The latest announcement involves a strategic partnership with a Malaysian consortium and a subsidiary of Vietnam's state-owned oil company PetroVietnam to explore exporting renewable energy from Vietnam into Malaysia and Singapore. The deal includes a feasibility assessment for a potential undersea cable from Vietnam to Malaysia.
Earlier in the month, Sembcorp said it had clinched S$650 million of contracts to provide chemical and energy solutions provider Aster with gas, power and utilities solutions for its Pulau Bukom and Jurong Island facilities. The two parties also signed a memorandum of understanding to explore strategic initiatives across Singapore, Indonesia and the rest of South-east Asia.
So far this year, Sembcorp has also announced a solar contract with a Meta Platforms subsidiary, a hydropower import project with Sarawak Energy, two industrial park projects in Vietnam with partner Becamex IDC, the S$105 million purchase of a solar farm in the Philippines from CleanCurrent Renewable Energy, and a utility-scale solar and storage project in Indonesia.
Not every announcement has been positive. Sembcorp said in March that a deal to import gas from Indonesia would be terminated because regulatory approval in Indonesia was not obtained.
Not all of the deals will lead to revenue soon. For instance, the Vietnam energy import agreement is still in very exploratory stages.
Outside of Singapore, Sembcorp's largest markets in terms of revenue are the UK, China and India. The rest of Asia – Sembcorp does not report South-east Asia as a separate geographical segment – makes up less than 5 per cent of total revenue. However, taken together, the recent announcements reflect a growing pipeline in South-eat Asia for Sembcorp.
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