Over the past three decades, China has made remarkable strides in economic development, maintaining a GDP growth average of nine percent a year and lifting more than 400 million people out of poverty. China is determined to ensure the sustainability of its economic and social development as it enters the 21st century, which it envisions in terms of a "harmonious society." To this end, sustainable investment has an important role to play, not only as a means of risk mitigation for the financial system, but also as a powerful lever for influencing corporate behavior and helping to improve ESG performance. Although the potential of sustainable investment as a positive force for broader economic performance appears relatively underdeveloped, there are encouraging cases showing that a small number of market pioneers and innovators are exploring ways to integrate ESG factors into investment. These investors are inventing homegrown methodologies which align with material issues at the country level.
Sustainable Investment in India 2009, the latest in the IFC Sustainable Investment Country Report series, focuses on the Indian market. In this report, TERI-Europe estimates that the total stock of investment in Indian equities where the investment strategy includes a strong focus on environmental, social and governance (ESG) considerations is small and almost entirely composed of investment by foreign institutional investors. They also find that the enabling environment for sustainable investment in Indian listed equities is currently weak. However, there are also some signs of positive change, including improvements in sustainability reporting and growing interest in ESG issues among foreign institutional investors.
Sustainable Investing in Emerging Markets: Unscathed by the Financial Crisis surveys the attitudes of corporate executives and investment professionals. It provides a unique "before and after" snapshot of mainstream investor opinion on sustainability issues in emerging market equity investment, comparing pre-crisis (2007) to mid-crisis (2009). In 2009, 46 percent of asset owners strongly agreed with the statement "ESG issues are an important part of our research, portfolio management and manager selection," up from 36 percent in 2007. The majority of asset owners (78 percent) think the importance of ESG factors has been amplified by the crisis and will result in greater use of ESG criteria over time. The report highlights some of IFC's investment and advisory service clients with good sustainability track record, that have continued to perform well despite the crisis.
A new series of reports from IFC and World Resources Institute (WRI) shines a spotlight on environmental risks and opportunities that will impact the financial performance of companies in India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam and sounds the alarm that these risk and opportunities are overlooked by investors and companies in the region. Emerging Risk lays the groundwork for analysts to understand environmental issues as financially material, and for companies to see the financial benefits of reducing their environmental impact.
Emerging Risk is the first report in a series establishing the link between issues such as climate change, air pollution, water, and natural resource depletion and traditional financial analysis on corporate value and financial strength for companies in these six key Asian economies. Together with the Undisclosed Risk report, Emerging Risk sets the stage for a series of sector-specific reports to be published by IFC, WRI and HSBC later this year. The upcoming reports will identify material environmental risks and opportunities in the region’s food and beverage, real estate and power generation sectors.
The series of reports are sponsored by IFC and WRI, in partnership with the Japanese government.
A new series of reports from IFC and World Resources Institute (WRI) shines a spotlight on environmental risks and opportunities that will impact the financial performance of companies in India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam and sounds the alarm that these risk and opportunities are overlooked by investors and companies in the region. Undisclosed Risk focuses on corporate transparency on environmental risks, and lays the groundwork for understanding environmental disclosure and reporting in emerging markets through an investor lens.
Undisclosed Risk is the second report in a series establishing the link between issues such as climate change, air pollution, water, and natural resource depletion and traditional financial analysis on corporate value and financial strength for companies in these six key Asian economies. Together with the Emerging Risk report, Undisclosed Risk sets the stage for a series of sector-specific reports to be published by IFC, WRI and HSBC later this year. The upcoming reports will identify material environmental risks and opportunities in the region’s food and beverage, real estate and power generation sectors.
The series of reports are sponsored by IFC and WRI, in partnership with the Japanese government.
Environmental, social and governance (ESG) issues have been an important commercial differentiator in the Brazilian financial and investment community for nearly a decade. The commitment, depth and sophistication of this market — now the world's 10th largest economy — may be unique among the world's emerging economies. As a signal of significant progress, Brazil's pioneering business models have received international attention and have been emulated in other markets.
Today Brazil's sustainable investment market faces fresh obstacles, especially taking into account the country's environmental and social issues and the scale of domestic and foreign investment. Against this background, this report, the first in a series of IFC Sustainable Investment Country Reports, aims to measure the current state and discuss the future of Brazil's sustainable investment market, and stimulate discussion.
Also see Gaining Ground - Integrating ESG factors into investment processes (March 2009). The report, published by IFC and Mercer, produced the first rating on ESG practices of fund managers in China, India, South Korea and Brazil and identified best-practice ESG examples to pre-empt potential risks and enhance returns.
While asset managers in developed markets are often credited with being a step ahead in factoring environmental, social, and corporate governance (ESG) issues into investment decisions, this latest research from Mercer and sponsored by IFC reveals that emerging market asset managers are increasingly considering ESG factors in their investment decisions. In fact, it suggests that sustainable investment assets under management in emerging markets have grown to over $300 billion—or nearly 10 percent of total investment in emerging markets in 2008. As part of this effort, IFC and Mercer produced the first rating on ESG practices of fund managers in China, India, South Korea and Brazil and identified best-practice ESG examples to pre-empt potential risks and enhance returns.
The study, entitled "Carbon Counts Asia 2007: Carbon Footprints of Asian Investment Funds" finds that investors in Asian Equity funds are therefore more exposed to carbon risks, but that there are opportunities to reduce the carbon intensity of Asian equity funds by some 30 per cent without suffering loss in performance. The study was launched during the UN Climate Change Conference in Bali in December 2007.
The theme of the fourth annual Who Cares Wins conference was New Frontiers in Emerging Markets Investments. During discussions, it was pointed out that financial and risk impacts from environmental, social and governance issues are particularly relevant when it comes to emerging market investments. In a speech given at the conference, IFC's Environment and Social Development department director, Rachel Kyte, emphasized this point, saying that "IFC firmly believes that environmental and social issues are inextricably linked in emerging markets, and that an economic expression of those issues in terms of both risk and opportunities is inevitable."
IFC's Banking on Sustainability report shows evidence of the potential benefits of adopting sustainability as a business strategy. It also shows a dramatic shift in banks' awareness of these benefits. Banks can tap vast benefits by reassessing their business practices and engaging in sustainability-oriented risk management and product development. IFC has pioneered new business models — for example in sustainable energy and banking to underserved groups — and is helping pave the way for other banks in emerging markets.
The Who Cares Wins conference, which gathers every year different actors from the investment chain, examined in 2006 the communication of environmental, social and governance (ESG) issues between companies and investors. A major challenge remains the fact that ESG issues are not easily quantifiable and therefore tend to be put aside by mainstream financial analysts who do not know how to enter them in their valuation models.
There is growing evidence that businesses can meet the demands of the commercial marketplace and still be environmentally and socially responsible. They can also become better prospects for investors as a result. This is demonstrated in IFC's new study "The Promise of Private Equity" through five case studies drawn from the portfolio of private equity funds in which IFC is an investor. The study shows how environmental and social sustainability was integrated successfully into core competencies and sound business management, thereby contributing directly to increased profits and better business performance.
Taking Stock report focuses on identifying the key investment themes which investors should be evaluating in order to analyze environmental, social and governance (ESG) issues relevant to the largest and highest impact sectors in Asia. It aims to identify a specifically Asian investment dynamic, based on both risks and opportunities. The report is specifically oriented to fund management and institutional investors in Asia, to provide an introduction to the most material ESG related investment issues effecting the most broadly held listed companies in each sector. Taking Stock provides a fresh and investor relevant model for assessing and presenting the materiality of ESG issues.
What do these three have in common: rising oil prices, rising carbon credits prices and companies' increased interest in emerging markets? "Who Cares Wins: One Year On", a joint IFC and Global Compact report on financial institutions' initiatives in 2005, indicates that these three global trends have led investors to pay greater attention to environmental, social and corporate governance issues.
The Who Cares Wins conference in 2005 first brought together institutional investors, asset managers, buy-side and sell-side research analysts, global consultants and government bodies and regulators to examine the role of environmental, social and governance (ESG) value drivers in asset management and financial research. There was a remarkable degree of agreement among participants that ESG factors play an important role in the context of longer-term investment.
This report looks at the role of the financial sector in Africa in promoting sustainability and identifies a number of innovations demonstrating sustainability banking in different countries in Africa. Together, these provide a clear indication of change in the financial sector from the more traditional defensive and narrow risk management approach, to being more proactive, and promoting competitive sustainability advantage.
Published and publicly endorsed by 20 financial institutions with combined assets under management of over US$6 trillion, this report developed guidelines and recommendations on how to better integrate environmental, social and governance (ESG) issues in asset management, securities brokerage services and associated research functions. The focus of the report is a series of recommendations, targeting different financial sector actors, which taken together seek to address the central issue of integrating ESG value drivers into financial market research, analysis and investment.
This report provides the first comprehensive review of socially responsible investment (SRI) in emerging markets. Commissioned by the IFC, the report is intended primarily for development finance professionals, but is also of interest to social investors. It surveys the current status of SRI in emerging markets, assesses its growth potential, and recommends steps that could help catalyze that potential.
The purpose of this set of reports is to provide up-to-date and comprehensive information on the status of socially responsible investing (SRI) in seven of Asia's emerging markets and, through this work, to advise on potential next steps for further developing SRI in Asia. The reports are directed at both global SRI investors and local investors, as well as other stakeholders interested in sustainable investment in Asia. The reports, which have been sponsored by the IFC, cover the following countries: China, India, Indonesia, Malaysia, Philippines, South Korea and Thailand.
"Beyond Risk" is a casebook on sustainability in the emerging markets financial sector. It documents how the sector has increasingly integrated environmental issues into day-to-day operations. As such it is an invaluable aid to understanding how these financial institutions have managed environmental risk and used environmental management as a tool for identifying new business opportunities. The casebook is based on case studies, in-depth interviews and research from the popular series of Competitive Environmental Advantage workshops that have been developed and run by IFC since 1996.
