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Poor ESG Reporting ‘Top Hurdle’ to Emerging Market Investment

Poor corporate environmental and social governance disclosure remains the number one challenge to investing in emerging markets, according to a survey of global investors by research firm EIRIS.

For Evolving markets: what’s driving ESG in emerging economies?, EIRIS received 44 responses from asset managers, asset owners, index providers and other people associated with investment. More than 78 percent of surveyed investors mention poor ESG governance as a hurdle facing them when investing in emerging markets. In EIRIS’ 2009 survey on the subject just under 70 percent saw it as a key challenge. The research organization describes the findings as “in keeping” with each other.

The opaque nature of ESG disclosure in emerging market companies is somewhat attributable to an imbalance in how these companies report on their activities in their home country and their operations in other countries.

However, the companies’ lack of clarity around ESG issues is not solely down to a lack of disclosure, EIRIS says. The organization say that it finds that a language barrier can further muddy the waters.

Governments in Brazil and South Africa lead on initiatives to encourage strong corporate ESG performance, the report says. China, India, Turkey, Mexico and Hong Kong are making good progress, EIRIS found. The report highlights the activities of Brazil’s BM&FBOVESPA stock exchange, and its initiatives to promote ESG and corporate governance disclosure, as evidence of best practice. In January, the exchange called for its listed companies to either publish sustainability reports or explain why they do not.

South Africa, Brazil and India have the best record on climate change, the report says

Another report on the state of ESG in emerging markets by the Forum for Sustainable and Responsible Investment has similar findings. Lessons Learned: The Emerging Markets Disclosure Project, 2008 – 2012 found that knowledge of sustainability reporting practices and international norms varied widely between the different markets. The report says that few international reporting guidelines, such as the Global Reporting Initiative, include year-on-year metrics, or offer in-depth information on sustainability risks such as climate change and water use.

In August, a report by GfK found that consumers in China and Brazil are buying more green products, despite a widespread and growing perception that environmentally friendly alternatives are too expensive. The report found the proportion of consumers who factor environmental protection into their purchase decisions grew 6 percentage points in China and 5 points in Brazil from last year.

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