Responsible investment allocations to emerging markets have increased by almost 30% since 2009, according to a global survey published today by responsible investment research specialists EIRIS.
Around a quarter of investors have increased their exposure to emerging markets in the aftermath of the financial crisis in EIRIS' survey of over forty global responsible investment houses. 10% of those surveyed also said they invested into emerging markets for the first time in the last year.
By 2020, emerging market gross domestic product (GDP) will overtake developed market GDP for the first time, 85% of the world's population will live in emerging markets and consumer spending in China and India alone is estimated to treble to USD 10tn. At the same time, global sustainbaility mega trends like climate change, resource scarcity and human rights will have a significant impact in these makets.
EIRIS' latest report 'Evolving markets: what's driving ESG in emerging economies?' combines investors' insights with data from EIRIS' newly-launched Emerging Markets Service to explore the strong currents that are carrying forward corporate performance and disclosure on Environmental, Social and Governance (ESG) issues in emerging markets.
Highlights from the research include:
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Stock exchanges in Brazil and South Africa have leapfrogged their developed-world peers by creating advanced ESG listing requirements, sustainability indices and other products to drive disclosure;
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Governments in Brazil and South Africa also lead on initiatives to encourage corporate ESG performance with China, India, Turkey, Mexico and Hong Kong making good progress;
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Poor corporate ESG disclosure remains the number one challenge to investing in emerging markets, with more than 78% of surveyed investors mentioning it;
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strong demand for ESG research on the classic three pillars of governance, environment and international norms such as human rights and corruption;
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Environmental issues, compliance with international norms and corporate governance remain core responsible investment concerns in emerging markets, just as they are in developed markets.
Josh Brewer, report author and Head of Financials and Technology team at EIRIS said: "The term 'emerging markets' is increasingly outdated, especially when applied to huge markets like China - the second largest economy in the world. South Africa and Brazil are leading the way with ESG initiatives which developed markets could well learn from".
"Lower returns and increased risk and volatility in developed markets has potentially resulted in a recalibration of risk/return ratios that make emerging markets more attractive to investors. Our report highlights the enormous investment potential which emerging markets offer, but also the significant ESG risks that need to be addresssed by investors into these markets" he continued.
Click here to download a copy of the report and survey findings.
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