Responsible Investor

These and other issues relating to emerging markets investments were the topic of this year’s annual Who Cares Wins event (5 July 2007, Geneva), which brought together more than 80 investment professionals representing leading asset owners, asset managers, investment consultants and research analysts.
The fact that asset owners are increasingly demanding a more explicit consideration of environmental, social and governance (ESG) issues in emerging markets investments was confirmed both by the owners present at the event and by preliminary results from an Economist Intelligence Unit survey to be released in the autumn. This is a challenge for asset managers and investment researchers focussing on emerging markets, because these issues are clearly not yet part of mainstream investing. Available research is scarce and emerging markets investment products that explicitly take ESG issues into account are rare.
Hendrik du Toit, CEO of Investec Asset Management, urged investors to allocate a small part of their assets to frontier markets . His experience has been that an entrepreneurial approach to frontier markets can have positive systemic impacts in terms of standards of disclosure, governance and ESG practice, and handsome financial rewards. The key is to establish standards that are in the interests of long-term investors before less scrupulous investors set the bar at lower levels.

Participants at the Geneva event agreed that more innovation and a broader offer are needed. The discussions at the event led to the following key insights:

• Perceptions about which ESG issues are most financially material differ between international and local emerging markets investors. Local investors often point to social and governance issues as being most relevant, at least in the short-term
• Many asset managers already consider corporate governance issues in their investment decisions, albeit not always systematically. These issues are seen as particularly important when companies are controlled by governments and families, which is often the case in emerging markets
• Participants stressed that emerging markets can not be viewed monolithically — country specificity and the ability to contextualise ESG issues are very important
• Investors must therefore become more sophisticated in assessing ESG issues; simple ESG country screens are not a viable option, because they risk excluding best-practice companies in non-eligible countries
• Investors should be more vocal in requiring minimum ESG disclosure standards from emerging market legislators and exchanges. The engagement of ASrIA and investors represented on the Hong Kong Stock Exchange Listing Committee, for example, has resulted in such standards being drafted.

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