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Emerging markets

Investing for tomorrow: applying ESG principles to emerging market debt

September 26, 2018 - by L. Bryan Carter, Head of Emerging Markets Fixed Income & Helena Vines-Fiestas, Head of Sustainability Research & Policy, BNP Paribas Asset Management

Applying Environmental, Social and Governance Principles to Emerging Market Debt

Key Takeaways

  • There is no longer just a single EM group, with poor countries converging to industrialised status slowly and surely over time, and advanced emerging markets graduating to developed countries.
  • With a deeply skilled ESG research team, we have amassed the data and monitoring capabilities to tailor and craft a unique approach suited to the nuances and dynamic realities of emerging markets.
  • The novelty of our approach is that instead of inclusion lists or exclusion lists, we use our composite score on each of the 90 EM countries to determine position sizing for investments in our portfolios.
  • We must look to the future and take a stand on the implications of our enterprise and the long-term viability of our holdings.

Full commentary

Many investors balk at the idea of using environmental, social and governance (ESG) criteria when investing in emerging markets (EM). Pictures of wood-burning stoves polluting tropical air or military tanks in a coup d’etat are often the associations one has with emerging markets and run counter to the growing need for environmental sustainability and good governance.

Just a decade ago, most countries facing fragile situations (whether political, social or economic) were low-income. This situation has hugely improved, with human development indices and other metrics demonstrating significant progress as many countries have graduated to middle income status. If we look ahead, some of the poorest countries with the lowest ESG scores may in fact produce the largest improvements.

Combining the expertise of our Emerging Markets Fixed Income team and our dedicated Sustainability Centre, our ESG in emerging market debt (EMD) report explores:

  • How – and why – we apply an ESG framework to EMD
  • Examples of the factors included in ESG screening
  • Incorporating ESG into the EMD investment process
  • The future of EM and the role of ESG

 

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