How we pioneered ESG investing emerging markets

The global momentum for responsible investment continues as corporates navigate the challenges and opportunities brought by the rapidly-transforming landscape of environmental, social and governance (ESG) issues.

Although companies have improved their ESG disclosure in recent years, the state of disclosure on relevant and quantifiable data points remains relatively low. This has been true especially in emerging markets. Thus, when Nordea Asset Management launched the Emerging Stars Equity Fund in 2011, we found ourselves to be pioneers in emerging markets ESG investing, and found it difficult to find good information on how companies were managing material ESG issues in these markets. We also discovered a “disclosure bias” in which emerging market companies suffered from poor – in some cases, artificially low – ESG ratings compared to their developed market peers via third-party rating agencies. To augment third-party ratings viewpoints, we implemented on-site visits as part of our ESG research process through which our in-house analysts regularly meet with management. Thus, we have developed assessments of ESG performance for emerging markets issuers over time that differ from those of third-party ESG ratings agencies.

What is SASB?

Established in 2011, the Sustainability Accounting Standards Board (SASB) is an independent, private-sector standards setting organization based in San Francisco, California dedicated to enhancing the efficiency of the capital markets by fostering high-quality disclosure of material sustainability information that meets investor needs.

The SASB develops and maintains sustainability accounting standards – for 79 industries in 11 sectors – that help public corporations disclose financially material information to investors in a cost-effective and decision-useful format. The SASB’s transparent, inclusive, and rigorous standards-setting process is materiality focused, evidence-based and market informed.

ESG Integration in Emerging Markets
We include ESG considerations in our investment analyses, decision-making processes, and ownership policies and practices. We believe that incorporating ESG factors in our investment activities can safeguard shareholder value and enhance long-term returns. This is supported by growing bodies of industry and academic research correlating ESG performance to corporate financial performance and improved shareholder returns. Considering material ESG issues in our investment decisions is a part of our fiduciary duty to our clients; being ESG proactive is reflected in our mission statement.

Download a comprehensive case study on how SASB Standards were used to augment our framework for assessing a Chilean copper mining company as an attractive and responsible investment for inclusion in the fund.

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