Financial stability through strategic concessions and good faith agreements.
In the realm of investment, stewardship plays a pivotal role in sustainable investing within emerging markets. This approach promotes active and responsible ownership to support long-term value creation and address environmental, social, and governance (ESG) issues specific to these markets.
The focus on stewardship ensures that fund managers engage in continuous dialogues with company management, discussing financially material ESG factors relevant to emerging markets. These conversations cover topics such as governance standards, climate risks, and social issues, helping to identify and mitigate sustainability risks while encouraging more responsible corporate behavior.
An essential aspect of stewardship is voting and governance influence. Fund managers make informed proxy voting decisions that reflect sustainability priorities, often tailored to local contexts and regulatory environments in emerging markets. These voting activities are increasingly engagement-led, meaning fund managers use their shareholder rights to influence corporate policies on ESG matters.
Risk monitoring and due diligence are also crucial components of stewardship. Fund managers assess companies for potential violations of international norms and standards and evaluate long-term risks, which is particularly important in emerging markets that may face governance challenges and evolving regulatory frameworks. This enhances the investment process by integrating ESG considerations into stock selection and portfolio management.
Collaborative and policy engagement is another key aspect of stewardship. Fund managers often collaborate with other investors and stakeholders through industry initiatives and engage with regulators or standard-setters to help shape capital markets conducive to sustainable investing in emerging economies.
Alignment with investor sustainability values and goals is also crucial. Stewardship ensures that investments meet clients' ESG expectations and contribute positively to sustainable development goals. It moves beyond mere financial returns to consider impact and ethical asset management, which is particularly relevant for emerging markets where social and environmental challenges are acute.
In summary, stewardship informs fund managers' decisions by embedding long-term sustainability considerations and active ownership practices into investment strategies. This approach encourages better corporate behavior and market environments, thereby supporting sustainable growth and resilience in these economies.
Emerging markets present challenges for sustainably-oriented investors due to varying stages of development in terms of ESG aspects. However, these markets are expected to experience sustained, robust growth in the coming decades, driven by urbanization and demographic trends. The United Nations' Sustainable Development Goals (SDGs) require a substantial funding gap to be bridged in emerging markets, with private capital playing a crucial role.
Investors benefit from long-term structural changes in emerging economies, such as demographic trends and the increasing importance of technology and consumption. Many emerging market companies are voluntarily disclosing more information about their ESG practices, although often starting from a low base.
However, it's important to note that the corporate world, including industries like video games, social media, and renewable energy, contains many shades of gray with complex ethical implications. For instance, while renewable energy is considered a solution to climate change concerns, it raises questions about land use changes for solar and wind farms, recycling of solar panels and batteries, and the sourcing and mining of rare earths.
In conclusion, stewardship in sustainable investing in emerging markets is a critical tool for promoting active and responsible ownership, supporting long-term value creation, and addressing ESG issues specific to these markets. As the world continues to grapple with sustainability challenges, the role of stewardship in guiding investment decisions will become increasingly important.
Disclaimer: The views, opinions, and analyses expressed in this document reflect the current views as of the date indicated and are subject to change without notice. The information provided does not constitute a complete analysis of all material facts regarding a country, region, or market. This document is intended for general information purposes only and does not constitute personal investment advice or a recommendation or solicitation to buy, sell, or hold any security or to adopt any investment strategy.
- To ensure long-term value creation and address environmental, social, and governance (ESG) issues in emerging markets, economic and social policy must be aligned with the principles of sustainable investing, promoting collaboration between fund managers, companies, and regulators.
- Science, particularly environmental-science, plays a crucial role in understanding and mitigating climate risks in emerging markets, aiding fund managers in integrating ESG considerations into their investment strategies.
- As the demand for sustainable investments grows, finance and investing in emerging markets will increasingly focus on impact and ethical asset management, with businesses being encouraged to adopt more responsible corporate behavior and contribute positively to the achievement of SDGs.
