Investors slow at ESG adoption in EMD investing
The environmental, social and governance (ESG) analysis in the emerging market debt (EMD) investing has the potential to generate enhanced alpha for investors, even though investors often discount its importance, according to Insight Investment’s research.
The research also showed that ESG analysis became an important part of credit analysis for developed market corporates, especially as part of investment grade corporate portfolios.
Additionally, according to the study, ESG analysis could help identify early warning signals that potentially enable investors to avoid ‘landmine’ investments.
In its study, Insight Investment stressed that despite the clear benefits of ESG analysis, its adoption among EDB investors was lacking as they often mistakenly saw ESG and EMD as incompatible.
“First, governance standards for emerging market corporates are perceived as being much lower than for their developed market equivalent,” the study said.
“Linked to this is the impression that because standards are intrinsically weal across emerging markets, ESG analysis is largely irrelevant because markets will not price in good or bad governance.
“Second, ESG analysis is seen as being prohibitively challenging to conduct for emerging market corporates given poor data quality, and lack of availability and disclosure of data.”
The study also proved that when comparing similar-sized corporates from the same industry in emerging and developed markets, the ESG ratings in some sectors were closer than investors expected
AUTHOR
Oksana Patron
Recommended for you
Selfwealth has provided an update on the status of its scheme implementation deed with Bell Financial Group as well as whether rival bidder Svava remains in the picture.
Magellan Financial Group has reported its first half FY25 results while appointing a new chief financial officer and promoting Sophia Rahmani to chief executive.
Schroders Australia has launched two active ETFs and plans to further expand its listed range over the year ahead.
Platform Netwealth has reported its financial results for the first half of FY25, reporting an 80 per cent increase in net flows, with its CEO viewing a “huge opportunity” from private assets.
