Emerging Market companies are being put under pressure by Cartica, a woman-led fund who advocate that well-managed, sustainable companies will generate better returns. Environmental, Social and Governance (ESG) are the three primary factors which investors use to evaluate the sustainability of a potential investment. The Coronacrisis has amplified the demand for ESG investments because in the first four months of the year, 88% of ESG stock indices performed better that their non-ESG counterparts. Which suggests that companies compliant with the measure are better protected in times of economic downturn and secondly that ESG funds invest not just for-profit but are truly focused on sustainability. The reason for this may be in the ‘G’ part of ‘ESG’, arguably the most important component as it means that a company is legally sound, highly risk-managed, and compliant with local and international policies.
ESG investment strategies are especially relevant in the Emerging Markets where most countries do not have the right policies and regulations in place to stimulate foreign investment. The free-roam type of business exhibited in countries like Mexico, Nigeria and Thailand is great for businessmen or women who simply wants to turn a profit but, for those who want to raise capital for their business it is likely they will not have the business practices and structure in place to make their business a viable investment. With 85% of investors now saying they are interested in sustainable investments the demand for ESG companies is clear. EM countries which enforce ESG will undoubtedly see more investors knocking on their door.