Investors increasingly aware of sustainability in emerging markets

Responsible investors are increasingly investigating and using their power to encourage sustainability in emerging markets – developing countries whose economies are progressing quickly – according to research firm Sustainalytics.

Loic Dujardin, director of research at the organisation, told CNBC, “In emerging markets, the societal checks and balances to keep companies honest may be fewer [than in developing markets].

“However, investors have begun to rely on several non-company information sources – e.g. NGOs or local media. This provides a fuller and multi-stakeholder perspective of the company and moderates the company’s own message and information.”

A report from rating agency Vigeo shows that over the last two years, the number of ethical funds available in the UK has slowly been increasing. Between June 2012 and June 2013, ethical assets in the UK increased by 30%, demonstrating the appetite for sustainable investment.

This movement is slowly spreading to emerging markets, with the Bangladesh tragedy bringing the issues to the forefront in April last year. This led to investors and religious groups in the US calling for better safety in overseas factories.

Despite this, investing sustainably in emerging markets is difficult. There are fewer funds available for investors to choose from and the risks involved are still relatively unknown. However, it does present an opportunity for investors to have a positive impact if they are willing to take the risk.

Speaking to CNBC, Kevin Parker, CEO of Sustainable Insight Capital Markets, described sustainable investment as a “common sense approach” to emerging global trends that will impact on companies in the long-term.

He said, “Sustainable investing is really a common sense approach in managing companies, in the way that managements are approaching global megatrends in terms of things like demographic changes, globalisation, urbanisation and resource scarcity.

“Companies are responding to these trends in managing their companies and managing their resources in a sustainable way.”

Parker also spoke about the large challenges the world is facing, such as an ageing population, obesity and resource scarcity and the impact they are having on sustainable investment. These sustainable issues are “rising in importance” and becoming “material issues” as a result, he said.

By looking at potential risks 25 and 50 years in the future, asset owners are realising that sustainability is vital and therefore it is rising in materiality.

Further reading:

Sustainable investors could spawn ‘self-fulfilling’ carbon bubble in 2014

Sustainability top priority for quarter of British small businesses

Research links sustainability initiatives to investment stability

High net-worths prepare to take bigger investment risks in 2014

Comic Relief to sell tobacco, arms and alcohol stocks amid ethical investment review