Seven out of ten major asset managers and institutional investors cite lack of environmental, social and corporate governance disclosure as the key challenge to investing in emerging ma
Seven out of ten major asset managers and institutional investors cite lack of environmental, social and corporate governance disclosure as the key challenge to investing in emerging markets, according to a survey from the Emerging Markets Disclosure Project.
The survey shows that at a time when increasing numbers of institutional investors are demanding more openness and transparency, poor environmental, social and corporate governance (ESG) disclosure by emerging market companies threatens to undermine investor confidence and could potentially reduce investment allocations to emerging markets.
Survey respondents commended two emerging market countries – Brazil and South Africa – for having made the most progress towards greater ESG disclosure. Both countries have developed a sustainability index to which their listed companies can aspire through improved disclosure.
Brazil was the top country allocation and Petrobras (Brazil) was the top emerging market holding for investors who responded to the survey. The top five country allocations after Brazil also included China, India, Mexico and South Korea, respectively.
The top ten individual company holdings were Petrobras (Brazil), Samsung Electronics (South Korea), China Mobile (China), Taiwan Semiconductor (Taiwan), Teva (Israel), Vale Do Rio Doce (Brazil), America Movil (Mexico), Gazprom (Russia), Posco (Korea), and Ambev (Brazil).
The survey also found that Europeans’ allocation to emerging markets is nearly double that of North Americans in the sample. Europeans are also much more likely to focus on corporate governance criteria and corruption issues within their responsible investment approach, while North Americans favour negative screening (e.g. screening out tobacco producers, divesting from Sudan).
Three-quarters of respondents are members of at least one organisation devoted to corporate social responsibility or responsible investing issues, most commonly the UN Principles for Responsible Investment.
Nearly two thirds had at least six years of experience in emerging markets.
"While the results are encouraging, the survey demonstrates the continued need for greater ESG transparency in emerging markets. Analysts need ESG disclosure in order to identify the most sustainable companies in which to invest," says Mike Lombardo, senior sustainability analyst of Calvert Investments, EMD Project’s South Africa country team lead.