The Case for ESG Integration in Emerging Markets

Navigating a Changing World

Despite a traditionally higher risk profile, Emerging Market (EM) equities have proven resilient and shown relative strength following 2020’s 1st quarter volatility. Even more noteworthy is that EM companies that scored highly for environmental, social, and governance (ESG) metrics outperformed the broader market year-to-date.

ESG considerations represent a vital part of active management, as the process leverages non-traditional criteria, both quantitative and qualitative, to enhance investment analysis and decision-making. As ESG investing becomes more mainstream, this is likely to encourage improvements in corporate standards globally, including in EM – where we see even greater scope for growth. 

Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential of loss of principal.

Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these country may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.

Market Disruption and Geopolitical Risk — Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, natural and environmental disasters, systemic market dislocations, public health crises and related geopolitical events have led, and in the future may lead, to increased market volatility, which may disrupt U.S. and world economies and markets and may have significant adverse direct or indirect effects on the value of a Fund and its investments.