Investments by emerging markets equities (EME) managers that are run according to broad sustainability criteria reached more than $300bn in 2008 – nearly 10% of total equity investment into emerging markets – according to research for the International Finance Corporation (IFC), part of the World Bank Group, carried out by Mercer, the investment consultant. The data, drawn from 177 fund managers investing in emerging markets, found that more than $50bn of these assets were managed in funds explicitly labelled as ‘sustainable investment’. The remainder, it said, reflected commitments by fund managers to integrate ESG (environmental, social and governance) research within their core stock selection processes, one of the key recommendations of the United Nations Principles for Responsible Investment (UNPRI). A broader survey of 514 global equity managers (including the 177 EME managers) found that those running money in emerging markets were more likely (46%) to integrate ESG factors, notably governance practices, into their investment processes compared with 34% of the total sample. Mercer has itself committed to integrate ESG factors into its selection of fund managers on behalf ofinstitutional clients. On the basis of the survey, Mercer produced a top 10 ranking of emerging markets managers according to their integration of ESG factors into investment funds. (see foot of story for Top Ten ranking). Greg Radford, director of environment & social development at the IFC, said the research was commissioned to support its belief that mobilising sustainable capital flows into emerging markets will shore up those economies and relieve poverty: “Good progress has been made, but there’s more to be done. During this financial crisis, investors may be tempted to think of environment, social and governance issues as tomorrow’s problem. Failure to act will not only undermine the progress to-date on ESG investment-decision integration, but will profoundly impact financial markets overall.” The research included 40 face-to-face interviews carried out by Mercer with fund manager investment teams in China, India, South Korea, and Brazil. Danyelle Guyatt, head of research at Mercer’s Responsible Investment unit, said these had revealed local idiosyncrasies regarding the way fund managers approached ESG. Funds labelled as sustainable, she said, had enjoyed good sales figures in Brazil and China.
More broadly, she said, Chinese investors showed rising awareness of governance and environmental issues mixed with a reluctance to engage with companies on ESG questions, perhaps, she said, because of political aspects of dealing with often state dominated companies. In Brazil, Guyatt said asset managers were keener on developing specialist sustainability products rather then integrating ESG factors into mainstream investment products. She noted strong ESG demand, however, from Brazilian pension funds, many of whom have signed up to the UNPRI.
Índia, she said, as a retail driven market, had recorded little ESG related product development and showed little activity in areas of corporate governance, active ownership or climate change investment, albeit with marginal consideration of social issues in investment decisions. In South Korea, she said the government was raising awareness on governance, but that there was a lack of good ESG data available from companies and little willingness by investors to engage with corporations on ESG issues.
Greg Radford, Director Environment and Social Development, IFC is speaking at Clean Investor 2009 10 emerging markets equity ESG-ranked (in order) managers based on responses to Mercer’s global survey:
> Colonial First State Global Asset Management (8 strategies, including the Global Emerging Markets Sustainability Fund, the top scoring fund)
> Threadneedle Asset Management (Latin American Fund & Global Emerging Markets Equity)
> Newton Investment Management (Asia-Pacific, Ex Japan Equity)
> Dexia Asset Management (Emerging Markets, Sustainable Equities)
> Investec Asset Management (Pan Africa)
> Robeco Group (Emerging Market Equity)
> Baillie Gifford & Company (Emerging Markets Leading Companies & Emerging Markets)
> Scottish Widows Investment Partnerships (Core)
> F&C (6 strategies including Indian Equity, Latin American Equity, Global Emerging Equity and 3 strategies on Asia-Pacific Ex Japan)
> Lloyd George Management (Global Emerging Markets Equity & Asia Ex Japan)