.jpg)
The integration of Environmental, Social and Governance (ESG) issues into business practices by emerging market companies has improved over the past few years, according to the new Eurosif Emerging Markets Report. Although lower than in developed markets and with different country implementation levels, ESG integration by companies operating in emerging market economies is on the rise, with investors playing a role in shaping and developing the market.
The research for this project was provided by sustainability rating organisation and researcher Inrate. A steering committee comprised of representatives from Bank Sarasin, Robeco, ECPI and Pictet Asset Management provided their expertise and input to help shape this report.
The report discusses ESG integration and reporting by companies operating in emerging markets, and the increasingly significant role that these economies play, due to their rapid economic growth and their large populations. As the emerging market asset class is increasingly forming a part of global investment portfolios, a strong momentum towards sustainable emerging market investments is developing.
Matt Christensen, Executive Director of Eurosif, states, “emerging market economies are often finding ways to weather the global financial with greater resilience than their developed market counterparts. As a consequence, investors will be requiring better ESG transparency and performance measures from companies in these regions as capital allocations increase.”
“Emerging market economies have been exhibiting over-average growth grates for many years. In this context, investors can contribute to a more sustainable future in these markets by directing capital towards companies that are able to innovate and grow whilst enlarging the country’s environmental and social capital,” comments Philippe Spicher, CEO of Inrate.
The report shows that among emerging markets, South Africa and Latin American companies tend to be the most advanced in integrating ESG issues. The research also highlights that, although corporate disclosure on sustainability is present in 9 out of 10 companies in the emerging markets, this figure drops when it comes to external verification or the adoption of standardised guidelines.
While 42% of emerging market companies support the adoption of environmental policies, they remain weaker on implementation and progress tracking. Chinese companies underperform significantly in the area of social issues integration in business strategy, with below average performances on labour and corruption policies. Nevertheless, pressure on emerging market companies is expected to grow, as emerging market economies play an increasingly important role in international sustainability issues.
"The timing is perfect now to start using an ESG screen for emerging market investments,” says Andreas Holzer of Bank Sarasin. “Environmental laws in emerging markets become tougher, employees and consumers are more demanding on social and consumption issues. Companies ready to meet these challenges have clear competitive advantages.”
Finally, the report points to a series of practices that might help guide investors to shape and develop their sustainability investment practices in emerging markets. For example, existing company ESG disclosure and reporting initiatives (such as CDP, GRI, the OECD Guidelines, etc.) can be useful tools for investors to facilitate the development of local corporate stakeholder capacities.
The Emerging Markets Report, launched on December 7, 2010 at an event in Zurich hosted by Inrate, is available for download at the following link: http://www.eurosif.org/research/theme-reports/emerging-markets.
