Sustainable investing in emerging markets continues to grow with more than US$300 billion of funds now under management, a new study has found.
This is almost 10 per cent of investments in emerging markets, according to research by Mercer that was commissioned by IFC, which is part of the World Bank Group.
About US$50 billion of assets identified represent funds labelled as sustainable investments, with the remainder reflecting mainstream institutional funds committed to integrating environmental, social and corporate governance (ESG).
Mercer surveyed 514 global equity managers with 177 managers investing in emerging markets.
Nearly half of global managers with investments in emerging markets state they are likely to integrate ESG into their investment processes, compared with 34 per cent of all managers, the survey found.
The top 10 ranked ESG managers by the survey were Colonial First State, Threadneedle Asset Management, Newton Investment Management, Dexia Asset Management, Investec Asset Management, Robeco Group, Baillie Gifford & Company, Scottish Widows Investment Partnerships, F&C and Lloyd George Management.
The head of research at Mercer’s responsible investment unit, Danyelle Guyatt, said fund managers in emerging markets were increasingly considering ESG factors in their investment decisions.
“The research found pockets of innovation, with many local fund managers in emerging markets having deeper knowledge and understanding of social issues than their global counterparts,” Guyatt said.
“However, there is also potential for improvement in practices, particularly in the utilisation of active ownership tools such as voting and engagement.”
While a number of managers are embracing ESG strategies in their funds, the survey found those with short-term investment horizons lagged behind.
“One of the key differentiators between the leaders and laggards on ESG integration and active ownership is the investment horizon adopted by the portfolio managers,” the survey said.
“Our research found that managers with shorter horizons (portfolio turnover in excess of 100 per cent per annum) were less concerned with ESG issues and less able to articulate or demonstrate how these might feature in their investment process.
“A longer investment horizon is therefore more conducive to pursuing long-term goals and behaving as an active, long-term responsible investor.”
The survey recommends fund managers improve training and awareness of ESG issues.
This can be achieved by using available resources and tools designed to encourage asset managers to better incorporate ESG research and investment considerations into their processes, the study said.
