Sustainable strategies win over skeptical emerging stock investors

Wed Dec 11, 2013 12:05pm EST
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By Carolyn Cohn

LONDON (Reuters) - Cajoled by developed world governments and shocked by disasters such as the Bangladesh factory collapse, investors in emerging market companies are looking more closely at environmental, social or governance issues before they buy.

Once the preserve of religious and ethically minded funds and the development finance arms of major economies, these ESG themes have moved into the mainstream.

Almost all emerging fund managers in a survey by UK development finance arm CDC to be published this week consider ESG to be integral to their investment strategy, and in many deals they regard it as a "fact of life".

It is a sharp contrast to a few years ago, when emerging market investors saw sustainable strategies as an irritant imposed by worthy multilateral lenders, or "the dead hand of eco-fascism", according to CDC's ESG director Mark Eckstein.

The global financial crisis showed that companies needed to have strong governance to be financially sustainable.

And disasters such as the fatal Rana Plaza garment factory collapse in Bangladesh this year illustrate the importance of social considerations such as health and safety procedures.

"We are beginning to see questions from investors such as 'Is this company going to be in business in five years' time?'," said Eckstein.

"There is a step up in investors' sophistication - they are taking ESG seriously because it is an issue for them."   Continued...

Traders work on the floor of the New York Stock Exchange December 9, 2013. REUTERS/Brendan McDermid