Investment in emerging markets – opportunities for risk management and sustainability

Until the last few years, the conventional view towards investing in emerging markets was that sustainability considerations too often appeared subordinate to the quest for economic growth. Emerging markets are now seen by many in the investment community as a place where good rewards can be earned.
EIRIS had just completed a review of the opportunities for responsible investment in emerging markets, which reveals the possibilities for diversification and risk management for investors as well as wider potential gains for sustainability.

The report identifies factors hindering Socially Responsible Investment in emerging markets:

  • perceived lack of consistent and widespread good corporate governance
  • continuing government ownership and control such as with many large listed Asian companies that can be a critically important variable in Environmental and Social Governance performance
  • the retention of large controlling interests by families in many emerging market companies that limit the rights and influences of minority shareholders.
  • even where governance, environmental or labour regulations are strong in some countries, enforcement is sometimes weak.
  • doubts about the honesty of some disclosed information or its credibility. For instance, in relation to ISO14001, the reputation of those providing the certification is crucial for trusting the information disclosed.
  • difficulties in engaging with companies in emerging markets. Although language may be a factor in some cases, the corporate culture of many companies is not yet responsive or attuned to international investors especially relating to environmental and social issues.
  • a limited number of third party organisations in these countries or regions to undertake the research required on companies. The Iinternational Finance Corporation is undertaking initiatives to facilitate and increase this research capacity.

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