Author
IFC/Mercer
Date
May 2009
Region/Country
Emerging Markets
Description
A new report from the IFC and Mercer finds growth in sustainable investing in emerging markets, but also notes the need for improvement in such areas as active ownership.
The report’s authors focused their inquiry into four major emerging markets: China, India, South Korea, and Brazil.
Key findings
- Investment in sustainable investment funds in emerging markets has grown more than fivefold between 2003 and 2008, to more than $300 billion.
- $50 billion of this amount reflects funds which are specifically branded as socially responsible or sustainable, while the remaining amount represent mainstream managers who take environmental, social, and governance (ESG) issues into account.
- In response to environmental concerns, China has developed a Green Security Index that requires heavy polluting companies to undergo an environmental assessment before they seek listing on Chinese stock exchanges.
- The report found that ESG improvements at a business level are challenged by China’s position as a world factory whose pursuit of profits too often excludes consideration of ESG factors. Corporate regulatory compliance is more often driven by fear of sanction than by a belief in ESG practices.
- India was found to have the lowest standards of ESG implementation of the countries surveyed in the report.
- While some investment managers displayed some awareness of local social issues, especially regarding poverty reduction, access to clean water, and sanitation, active ownership of Indian companies was found to be noticeably absent.
- However, the Stock Exchange in Mumbai does have a sustainability index. The S&P ESG India Index, which was initiated and sponsored by the IFC, comprises 50 Indian companies that meet ESG criteria.
- South Korea has seen the largest increase of sustainable investment (SI) labeled funds, which grew from two in 2005 to 45 in 2008.
- The South Korea Exchange is developing an eco index listing, and plans to establish a socially responsible investment (SRI) index in the future.
- However, in general there was a lack of good reporting on ESG standards, and little willingness to engage companies was in evidence.
- In Brazil, where the concept of sustainability led to the creation of an SI labeled fund in 2001, engagement with companies on the issue of corporate governance has become fairly common, and the practice of proxy voting has begun to take root as well.
- Investment managers in Brazil tend to offer specialty products, rather than integrating ESG into mainstream products.
- However, the UN Principles for Responsible Investment (PRI), a major driver for global sustainable investment, has 28 signatories in Brazil, including 18 pension funds, 8 asset managers and 2 professional service providers.
More information
Tags: Emerging Markets, Environmental, Governance, IFC, Investment, managers, ownership, socially, stock exchange, Sustainability
The more I learn the more I realize that creating high-performing funds with the penchant for doing good is a huge opportunity to make a difference. As Socially Responsible Investors begin to wake up, this space will explode.