Responsible investors seeing ‘enormous potential’ of emerging markets

Responsible investors around the world have increased the share of emerging markets in their portfolios by 30% since 2009; according to responsible investment research firm EIRIS.

The findings, which appear in a report called Evolving markets: what’s driving ESG in emerging economies?, also found that a quarter of the 40 global responsible investment houses surveyed had amplified their exposure to emerging markets in the wake of the financial crisis – as investors attempted to seek stable and profitable funds.

The report also found that stock exchanges in places like Brazil and South Africa had overtaken some of their developed world counterparts in terms of sustainability and environmental, social and governance (ESG) issues. This comes after indices from the two countries – BM&FBOVESPA and the Johannesburg Stock Exchange respectively – were included in a group of five stock exchanges that pledged to promote sustainable investment in June.

“The term ’emerging markets’ is increasingly outdated, especially when applied to huge markets like China – the second largest economy in the world”, commented Josh Brewer, report author and head of the financials and technology team at EIRIS.

“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 have 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 addressed by investors into these markets.”

The EIRIS report states that this year, emerging markets are set to overtake developed markets in terms of gross domestic product (GDP). Its current 50.8% share of global GDP is also predicted to shoot up to 60% by just 2020 – by which time, emerging economies in Africa, Asia and South America will be home to 85% of the world’s population.

Further reading:

Stock exchanges announce commitment to sustainable investment

The Guide to Sustainable Investment