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ESG-themed funds most popular in emerging markets – EIRIS

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  • ESG-themed funds most popular in emerging markets – EIRIS

GLOBAL - Environmental, social and governance (ESG) themed funds are the most popular sustainability investment strategy in emerging markets, according to the Emerging Markets Report by ESG investment research provider EIRIS.

These were followed closely by general socially responsible investment (SRI) funds and then niche SRI funds, meaning thematic or sector-focused funds.

Other approaches identified included the integration of ESG factors into the standard investment process, investment in general emerging market funds and emerging market exchange-traded funds (ETFs) and screening out investments based on business activity in countries of concern, such as Sudan and Iran.

Niche investments such as providing micro credits and investing in vineyards were also mentioned.

EIRIS said both pull and push factors drove increasing demand for ESG information from emerging market companies, as investors sought to put money into these rapidly expanding economies.

The pull factors were dominated by a growing realisation among investors that the incorporation of ESG issues into the investment process to reduce risk, drive performance and identify investment opportunities could have a positive influence on the financial performance of companies - particularly over the long term.

The push factors reflect pressures from a wide range of stakeholders including NGOs, campaign groups, trade unions, community representatives and some emerging market governments to ensure the negative social and environmental impacts of corporate activity are mitigated in some way.

The 2012 investor survey shows that poor corporate ESG disclosure remains the number one challenge to investing in emerging markets, with more than 78% of surveyed investors citing it.

Environmental issues, compliance with international norms and corporate governance remain core responsible investment concerns in emerging markets, just as they are in developed markets.

Investment allocations to emerging markets are up by almost 30% since 2009.

Around a quarter of surveyed investors have increased their exposure to emerging markets in the aftermath of the financial crisis.

Meanwhile, stock exchanges in Brazil and South Africa have leapfrogged their developed-world peers by creating advanced ESG listing requirements, sustainability indices and other products to drive disclosure.

The report also finds that governments in Brazil and South Africa lead on initiatives to encourage corporate ESG performance, with China, India, Turkey, Mexico and Hong Kong making good progress.

The Top 5 emerging market countries invested in are China, Brazil, Taiwan and Thailand, with India, Indonesia and South Africa all in fifth place.

India has dropped down to fifth from joint second with China in the 2009 investor survey.

Thailand and Indonesia are both new entrants in 2012, with Russia, Mexico and South Korea all dropping out of the Top 5 from 2009.

The Top 3 emerging market company holdings were Samsung Electronics of South Korea, Taiwan Semiconductor Manufacturing and China Mobile.

The most frequently cited index was the MSCI Emerging Market.

The 2012 emerging markets report is a follow-up to the previous report carried out in 2009 by the Emerging Markets Disclosure Project.

The analysis focused on 800 companies spread across 30 emerging economies.

Responses to the 2012 emerging markets investor survey were collated from the beginning of August to the beginning of September.

In total, there were 44 responses to the survey.
 

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