Whilst, in broad terms, ESG factor disclosures by companies in Emerging Markets is not yet at the level of Developed Markets, it continues to improve, and indeed what we now think of as ESG factor considerations have been present in the running of such companies for many years, according to Geoffrey Mazullo of Emerging Markets ESG.

At Minerva’s recent ESG Educational Event, Geoffrey delivered a presentation looking at the origins of ‘ESG’ as a concept in Emerging Markets. He highlighted recent investment history, when ‘Emerging Markets’ and ESG in the form of ‘Socially Responsible Investment’ (SRI) were treated as different investment choices by investment professionals. There were very few examples of Emerging Market SRI products, beyond Islamic finance and micro-finance, which were largely offered by boutique, specialized institutions.

Over the last decade, as the concept of SRI faded and a more holistic ESG factor approach rose to prominence, asset owners, asset managers and companies each had to look beyond their respective traditional remits of maximising financial return, investing based on financial attributes and maximising shareholder value. This has resulted in increased awareness of sustainable investment, with Emerging Market ESG now being driven by:

• Corporates: From governance of governance to governance of ESG as well as financial internalities and externalities;
• Investors: Demand for emerging markets ESG products and services – commercial lending, commodities, deposits, equity, fixed income, real estate and sovereign;
• Regulators: Corporate governance codes;
• Service Providers: Mainstream service providers’ acquisition of boutique service providers with emerging market coverage;
• Explosion of emerging market ESG indices:  Brazil, China, Chile, Egypt, Hong Kong, India, Israel, Mauritius, Mexico, Peru, Poland, Russia, Singapore, South Africa, South Korea, Taiwan and Turkey as well as global emerging markets and regional;
• Stock Exchanges: Mandatory or voluntary ESG disclosure; and
• Technology: Clean cookstoves, fintech, biomass, solar, wind.

Geoffrey concluded by expressing his view that modern ESG in Emerging Markets is driven by a recognition – by companies and their investors – of ESG factors being internalities that impact operational performance, financial performance, risk management and stakeholder engagement.

For more information on how Minerva is helping asset steward get to grips with their new ESG responsibilities, and stay up to date on latest developments, say hello@minerva.info

Last Updated: 3 March 2020