Did Walmart push Flipkart on the ESG path?
Synopsis: Flipkart is one of India’s leading digital commerce entities in which Walmart became the majority shareholder in 2018. Ever since, there have been official and unofficial reports on the likely timeline and size of the initial public offering (IPO). The parent group, Walmart has had a major image problem in the US due to its impact on local communities and its predatory pricing hurting smaller businesses. It has been working actively to better its public perception. Even in the case of Flipkart, the newsroom section has seen increased activity since Walmart acquired a majority stake and EMAlpha AI-ML has carried out a detailed analysis of the same. According to EMAlpha analysis, a clear ESG push is visible in Flipkart’s communication. EMAlpha AI-ML infers: a) Flipkart doesn’t talk a lot about the business, b) Either because of Flipkart being an unlisted entity or because of Walmart’s negative publicity on social issues, the focus is on the social issues from ESG, c) More than one-third of news releases are on social issues like employment creation, support to small enterprises, education and learning initiatives and community development, d) Not only have the number of press releases increased, the focus is much more on ESG issues, social in particular.
Flipkart: The Pioneer of online shopping in India
Flipkart is one of India’s leading digital commerce entities and includes group companies Flipkart, Myntra, Flipkart Wholesale and Cleartrip. It was started in 2007 by two tech entrepreneurs, the story of which is well documented. As per the company information, Flipkart has a registered customer base of more than 350 million and offers over 150 million products across 80+ categories.
According to an article at India Brand Equity Foundation (IBEF) which is based on independent estimates, Indian e-commerce is projected to increase from 4% of the total food and grocery, apparel and consumer electronics retail trade in 2020 to 8% by 2025. India’s e-commerce orders volume increased by 36% in the last quarter of 2020 and the e-commerce market is expected to reach US$ 84-billion in 2021 with growth in Indian organised retail sector.
May 2018: Walmart to become the majority shareholder
On 9th May 2018, Walmart announced that it has signed definitive agreements to become the largest shareholder in Flipkart. “The investment will help accelerate Flipkart’s customer-focused mission to transform commerce in India through technology and underscores Walmart’s commitment to sustained job creation and investment in India, one of the largest and fastest-growing economies in the world.”, according to an official Walmart press release.
In August 2018, Walmart announced completion of its Investment in Flipkart, for Walmart to become the largest shareholder in the Flipkart Group. According to this announcement, Tencent Holdings Limited and Tiger Global Management LLC will remain represented on the Flipkart board, in addition to independent board members, and will be joined by new members from Walmart. At the time of this deal, Walmart held approximately 77 percent of Flipkart.
Flipkart IPO: Not ‘if’ but ‘when’
Even before Walmart acquired a majority stake in Flipkart, the Initial Public Offering (IPO) was on the cards for the company. From time to time, there have been official and unofficial reports on the likely timeline and size of the public offering. Among the more recent news flow, there were reports in April 2021 that Flipkart is aiming for an IPO in the fourth quarter of 2021 and its parent Walmart has set up an internal IPO team for Flipkart and is keen on a listing in the US.
In June 2021, there were reports that Walmart was ready for Flipkart’s IPO but there was no specific timeline yet. The reports highlighted that Walmart had invested USD 16 billion in 2018 in Flipkart to pick up 77 per cent stake and in July 2020, it led a USD 1.2-billion round in the company, valuing the e-commerce firm at USD 24.9 billion. Walmart International President and CEO Judith McKenna said that both Flipkart and payment app PhonePe continue to do well, while speaking at the DB Access Global Consumer Conference on June 7.
ESG push at Flipkart since Walmart came on board
Walmart has had a major image problem in the US and it has faced severe criticism on many counts including its impact on local communities and ‘mom and pop shops, the wages which are paid to workers and its attitude towards employee unions. Walmart’s policies and business practices have also come under severe criticism on charges of racial and gender discrimination and predatory pricing. The arguments against Walmart’s lower prices are that they draw customers away from smaller businesses, hurting local small-town communities, and that’s because Walmart mainly sources from China.
For many decades, public relations and media campaign was not a major priority for Walmart but for the past fifteen years, Walmart has started paying attention to it. It has realised that public perception matters and it has been working actively to better its image. Even in the case of Flipkart, the newsroom section has seen increased activity levels since Walmart acquired a majority stake and EMAlpha AI-ML has carried out a detailed analysis of the same. According to EMAlpha analysis, a clear ESG push is visible.
Table 1: Analysis of press releases by Flipkart under ESG heads (month-by-month)
Note: For July 2021, the analysis is up to 10th of July.
Source: Flipkart News room and compiled by EMAlpha
There are some clear trends regarding how Flipkart reports major developments at the company and the achievements it highlights. EMAlpha AI-ML infers;
- Flipkart doesn’t talk much about the business. The company doesn’t highlight things like revenue, profitability and India’s potential as an e-commerce market.
- Either because of Flipkart being an unlisted entity or because of the parent Walmart’s negative publicity on social issues, the focus is on the social issues from ESG.
- More than one-third of the news releases are on social issues like employment creation, support to small enterprises, education and learning initiatives and community development.
- Not only have the number of press releases increased, the focus has been much more on ESG issues, social in particular.
- The Governance topics don’t appear that much and the environment related issues are also not very frequent. This may increase post IPO.
- Since environment is increasingly becoming important for ESG, it may have been the reason why the company did a lot of publicity on recent 100% single-use plastic elimination packaging.
Table 2: Analysis of press releases by Flipkart under ESG heads (year-by-year)
Note: For July 2021, the analysis is up to 10th of July.
Source: Flipkart News room and compiled by EMAlpha
ESG in Flipkart news releases for 2021
8th July 2021 – Flipkart Leap Demo Day: Eight Startups Showcase Their Futuristic Technologies To Innovate For India, a) Finalists of the Flipkart Leap program, including startups from retail tech, robotics, agri-tech and fintech space, showcased their offerings to potential investors and industry leaders, b) Applications for Cohort 2 of the program to open soon.
7th July 2021 – Flipkart achieves milestone of 100% single-use plastic elimination packaging throughout its own supply chain, a) Delivers on its commitment to remove single-use plastic in packaging in its own supply chain by 2021, b) Continues to work with its seller ecosystem to achieve complete single-use plastic-free packaging in seller ecosystem.
1st July 2021 – Flipkart Launches Shopsy, a digital platform focused on boosting local entrepreneurship, a) Shopsy, by Flipkart, will provide opportunities to enterprising Indians to start their own online business with no upfront investment, b) With Shopsy, Flipkart aims to enable over 25 million online entrepreneurs by 2023 as they reap the benefits of digital commerce, c) Shopsy will offer 15 Cr products across Fashion, Beauty, Mobiles, Home and more for individual entrepreneurs.
29th June 2021 – Flipkart donates ICU Ventilators to the state of Maharashtra, a) Part of Flipkart’s overall commitment to providing critical life-saving equipment to state governments across the country, b) Efforts to help strengthen the state’s critical care COVID-19 relief work.
28th June 2021 – Flipkart donates ICU Ventilators to the state of Karnataka, a) The state is also receiving ICU Multipara monitors, and the aid is part of Flipkart’s overall commitment to providing ICU ventilators across the country, b) Efforts to help strengthen the state’s critical care COVID-19 relief work.
18th June 2021 – Flipkart introduces ‘Back to College’ program to offer an enhanced learning experience to students, a) Students can now get learning modules from leading edtech companies along with their purchase of laptops and tablets during the 3-month long campaign.
27th May 2021 – Flipkart Expands Benefits To Enable Financial Support For Lakhs of Sellers Under its Growth Capital Program, a) New partnerships to provide access to a range of credit options from < Rs. 5 lacs to Rs. 5 Crores at competitive interest rates, b) Flipkart’s Growth Capital program saw a 53% surge in volumes and an 82% increase in value year-on-year, c) The program has introduced ‘Early Settlement’ options that will enable sellers to receive their order payments in advance.
21st May 2021 – Flipkart’s kirana partners register nearly 30% increase in average monthly delivery incomes in 2020, a) Kiranas in the South saw the highest growth in monthly income, followed by the East, West and North, b) Among the top cities, kirana partners from Hyderabad witnessed the highest growth in delivery incomes followed by Ahmedabad, Mumbai and Bengaluru and Pune.
7th May 2021 – Flipkart brings a slew of initiatives to support its lakhs of sellers and artisans, a) Initiatives include both financial and health benefits for all Flipkart marketplace sellers, b) Flipkart to bear 100% premium of COVID insurance for all transacting sellers, c) Relaxation in policies and performance metrics including waiver of storage fee, cancellation fee, Seller Protection Fund claim benefits, among others.
30th April 2021 – Walmart, Flipkart, PhonePe and the Walmart Foundation leverage global resources to scale initiatives in support of India’s pandemic battle.
6th April 2021 – Flipkart partners with EDEL by Mahindra Logistics to accelerate deployment of electric vehicles (EV) in its last-mile delivery, a) In line with its commitment to 100% EV adoption by 2030, Flipkart has partnered with EDEL to help in the transition, b) EDEL provides sustainable end-to-end delivery services, including EVs, trained driver-cum-delivery associates, infrastructures like charging stations, and integrated technology-based control towers.
10th March 2021 – Flipkart is preparing the next generation of women in tech: launches third edition of ‘Girls Wanna Code’, a) ~ A three-month mentorship programme for 2nd, 3rd and 4th year engineering students, who will be mentored by Flipkart leaders to begin their careers in coding, b) Students who excel may choose to appear for Flipkart hiring opportunities (full-time and internship), c) This initiative falls under the organisation’s charter of enabling more women in the technology stream.
9th March 2021 – Government Of Telangana’s We HUB Partners With Flipkart To Enable E-commerce Access For Entrepreneurs, a) WE HUB and Flipkart will work together to provide market access and develop professional identities for women entrepreneurs in Telangana, b) Artisans, weavers, and Handicrafts producers across Telangana, through WE HUB, will register as suppliers on the Flipkart platform enable them to sell their wide range of products to a pan-India consumer base.
5th March 2021 – Flipkart recognised by Great Place to WorkⓇ Institute among Top Three Best E-commerce Workplaces In India, a) Flipkart has been recognised among India’s Best Workplaces in Retail 2021 by the Great Place to WorkⓇ Institute in association with the Retailers Association of India, b) Flipkart has also been recognised among the top three best e-commerce workplaces in India, c) Flipkart has earned this recognition for fostering a workplace that excels on five dimensions of building a High-Trust, High-Performance Culture – Credibility, Respect, Fairness, Pride and Camaraderie.
5th March 2021 – This Women’s Day, Flipkart’s Latest Campaign – #LeadLikeHer Recognizes the Entrepreneurial Spirit of Women, a) Flipkart has launched its latest campaign #LeadLikeHer to celebrate the spirit of entrepreneurship this Women’s Day, b) The campaign aims to encourage women entrepreneurs to lead their businesses while tapping into the power that e-commerce presents today.
24th February 2021 – Flipkart to deploy more than 25,000 Electric Vehicles in its Supply Chain to achieve 100% transition to electric mobility by 2030, a) Builds on its commitment to transition its logistics fleet to Electric Vehicles after joining the Climate Group’s EV100 initiative, b) Partners with key players including Hero Electric, Mahindra Electric and Piaggio to procure electric vehicles through logistics partners.
18th February 2021 – Flipkart And MSME Department, Govt. Of Tamil Nadu Partner To Enable Growth For Small Scale Businesses And Local Artisans In The State. Flipkart has signed a Memorandum of Understanding (MoU) with TN MSME Trade and Investment Promotion Bureau (MTIPB), Government of Tamil Nadu, to bring local artisans, weavers, craftsmen and SMBs of the state into the e-commerce fold.
11th February 2021 – Flipkart And Govt. Of Maharashtra Come Together To Boost The Growth Of Small Scale Businesses And Local Artisans In The State, a) This MoU signed under the Flipkart Samarth initiative, b) Partnership with MSSIDC and MSKVIB in Maharashtra will enable the State’s local artisans, weavers and small scale businesses to showcase their hallmark products to millions of customers across the country.
3rd February 2021 – Flipkart Wholesale strengthens commitment towards kiranas, MSMEs with infrastructure boost for grocery business, a) Flipkart Wholesale supports 6,500 direct and indirect jobs pan-India and will continue to boost job creation this year as well, b)Flipkart Wholesale begins its grocery operations in Gurugram through a fulfilment centre in Bilaspur, c) Kiranas will get one-stop access to a wide selection across categories such as personal care, staples, beverages, cleaning & laundry, snacks, confectionery and packaged foods.
19th January 2021 – Flipkart Receives ISO22301 certification for Business Continuity by British Standard Institute (BSI), a) becomes one of the first e-commerce companies to receive this certification for Business Continuity Management Systems by BSI India for 26 key sites including corporate office and Supply Chain, b) BSI cites effective participation and awareness programs of staff at all levels to maintain Continuity Controls and promote Continuity Culture as one of the key tenets of this certification.
13th January 2021 – Flipkart’s latest ecosystem partnership makes smartphone purchases more affordable for millions of Indians. Flipkart launches a subscription-based offering that guarantees money-back on new smartphone purchases after a 12 or 18-month tenure.
11th January 2021 – NITI Aayog and Flipkart collaborate to enhance Women Entrepreneurship Platform, a) The platform will host revamped ‘community’ engagement as it successfully completes two years of empowering women entrepreneurs, b) Community feature aims to bridge the gap between knowledge seekers and knowledge providers, c) FICCI and FLO join to facilitate Mentor – Mentee connect through a special online mechanism under Empowering the Greater 50% campaign.
7th January 2021 – Flipkart in partnership with Logistics Skill Sector Council and KSDC to set up Centre of Excellence to bridge the skill gap in the logistics industry, a) The first-of-its-kind training centre for e-commerce logistics in Bengaluru, spread across 1,500 sq ft with digital classrooms, b) To provide training to candidates in all aspects of the supply chain and logistics industry including delivery and material handling, developing industry certified talent, c) Flipkart co-created learning module with LSC in line with Karnataka Kaushalya Mission to help the unskilled & unemployed workforce get certified under the National Skill Qualification Framework (NSQF) and encourage industry acceptance for this certification.
How EMAlpha can help Asset Managers on Private companies
There is, undoubtedly, a profound ESG movement going all over the globe right now. From countries to asset managers, from millennial investors to the old school stalwarts, everybody’s counting on the ESG chip for a better future and a better return on investment. It is worth noting that ESG is not applicable for listed entities alone and the portfolio managers will need to ensure that all their Assets Under Management (AUMs) get aligned. This includes private investments as well.
The Asset Managers need to have a clear picture on what the unlisted companies are doing on ESG and how they are preparing for a public issue. For example, EMAlpha’s proprietary AI-ML tools pick up increasing activity from the company in ESG communication and this could mean an impending IPO in the near term. The tools are also helpful in understanding the issues which are in focus. For example, large companies like Flipkart in e-commerce space are often criticised on their social impact.
In general, EMAlpha with its proprietary AI-ML techniques becomes useful for investors to gauge companies on the ESG front. As we have discussed, the changes in perception on ESG track record of a company and reactions from institutional investors have become an important driver of stock prices and especially in cases where the volatility is high, it matters even more. From individual stocks to a portfolio, the complexity increases even more and EMAlpha AI-ML is a helpful tool for Asset Managers in evaluating progress for their portfolios and take corrective measures, as and when required.
It is worth noting here that EMAlpha believes that it is never enough to focus just on official or company reported information for a holistic ESG analysis. However, this analysis was done mostly on the basis of what Flipkart has reported. EMAlpha AI-ML has used less than 10% information from sources which are not official i.e. which cannot be attributed to Flipkart. For the ESG analysis, the information is 100% official Flipkart data and the classification of news flow under the categories was done by EMAlpha AI-ML.
- Indian E-commerce Industry Analysis https://www.ibef.org/industry/ecommerce-presentation#login-box (Accessed on 10th July 2021)
- Walmart to Invest in Flipkart Group, India’s Innovative eCommerce Company https://corporate.walmart.com/newsroom/2018/05/09/walmart-to-invest-in-flipkart-group-indias-innovative-ecommerce-company (Accessed on 10th July 2021)
- Walmart and Flipkart Announce Completion of Walmart Investment in Flipkart, India’s Leading Marketplace eCommerce Platform https://storiesflistgv2.azureedge.net/stories/2019/11/Walmart-Flipkart-Close-of-Transaction-Joint-Press-Release-FINAL.pdf (Accessed on 10th July 2021)
- Flipkart is said to aim for IPO in fourth quarter of 2021 https://economictimes.indiatimes.com/tech/startups/flipkart-is-said-to-aim-for-ipo-in-fourth-quarter-of-2021/articleshow/81937510.cms (Accessed on 10th July 2021)
- Flipkart IPO: Walmart says ready for e-commerce giant’s IPO but no specific timeline yet https://www.indiatvnews.com/business/markets-flipkart-ipo-news-date-walmart-share-710613 (Accessed on 10th July 2021)
- Flipkart Leap Demo Day: Eight Startups Showcase Their Futuristic Technologies To Innovate For India https://storiesflistgv2.blob.core.windows.net/stories/2021/07/FINAL-Press-Release_-Flipkart-Leap-Demo-Day_-Eight-Startups-Showcase-Their-Futuristic-Technologies-To-Innovate-For-India.pdf (Accessed on 10th July 2021)
- Flipkart achieves milestone of 100% single-use plastic elimination packaging throughout its own supply chain https://storiesflistgv2.blob.core.windows.net/stories/2021/07/Final-Flipkart-eliminates-Single-use-plastic-in-its-Supply-chain-.pdf (Accessed on 10th July 2021)
- Flipkart Launches Shopsy, a digital platform focused on boosting local entrepreneurship https://storiesflistgv2.blob.core.windows.net/stories/2021/07/60dd7ef43f21e-60dd7ef43f221English_Flipkart-Launches-Shopsy-a-digital-platform-focused-on-boosting-local-entrepreneurship.pdf.pdf (Accessed on 10th July 2021)
- Flipkart donates ICU Ventilators to Maharashtra https://storiesflistgv2.blob.core.windows.net/stories/2021/06/English-Flipkart-donates-ICU-Ventilators-to-the-state-of-Maharashtra.pdf (Accessed on 10th July 2021)
- Flipkart donates ICU Ventilators to Karnataka https://storiesflistgv2.blob.core.windows.net/stories/2021/06/Flipkart-donates-ICU-Ventilators-to-the-state-of-Karnataka.pdf (Accessed on 10th July 2021)
- Flipkart introduces ‘Back to College’ program to offer an enhanced learning experience to students https://storiesflistgv2.blob.core.windows.net/stories/2021/06/Flipkart-introduces-%E2%80%98Back-to-College-program-to-offer-an-enhanced-learning-experience-to-students.docx-1.pdf (Accessed on 10th July 2021)
- Flipkart Expands Benefits To Enable Financial Support For Lakhs of Sellers Under its Growth Capital Program https://storiesflistgv2.blob.core.windows.net/stories/2021/05/FINAL-Press-Release_-Flipkart-Expands-Benefits-To-Enable-Financial-Support-For-Lakhs-of-Sellers-Under-its-Growth-Capital-Program.pdf (Accessed on 10th July 2021)
- Flipkart’s kirana partners register nearly 30% increase in average monthly delivery incomes in 2020.
https://storiesflistgv2.blob.core.windows.net/stories/2021/05/Flipkarts-kirana-partners-register-nearly-30-increase-in-average-monthly-delivery-incomes-in-2020.pdf (Accessed on 10th July 2021)
- Flipkart brings a slew of initiatives to support its lakhs of sellers and artisans https://storiesflistgv2.blob.core.windows.net/stories/2021/05/FINAL-Press-Release_-Flipkart-brings-a-slew-of-initiatives-to-support-its-lakhs-of-sellers-and-artisans.pdf (Accessed on 10th July 2021)
- Walmart, Flipkart, PhonePe and the Walmart Foundation leverage global resources to scale initiatives in support of India’s pandemic battle https://storiesflistgv2.blob.core.windows.net/stories/2021/04/Walmart_India-Covid-response_April-30_FINAL.pdf (Accessed on 10th July 2021)
- Flipkart partners with EDEL by Mahindra Logistics to accelerate deployment of electric vehicles (EV) in its last-mile delivery https://storiesflistgv2.blob.core.windows.net/stories/2021/04/Final-FK-MLL-partnership-6th-April-.docx.pdf (Accessed on 10th July 2021)
- Flipkart is preparing the next generation of women in tech: launches third edition of ‘Girls Wanna Code’ https://storiesflistgv2.blob.core.windows.net/stories/2021/03/Press-Release-Flipkart-is-preparing-the-next-generation-of-women-coders-in-India.pdf (Accessed on 10th July 2021)
- Government Of Telangana’s We HUB Partners With Flipkart To Enable E-commerce Access For Entrepreneurs https://storiesflistgv2.blob.core.windows.net/stories/2021/03/FINAL-Press-Release_-WE-HUB-Partners-with-Flipkart-To-enable-entrepreneurs-receive-e-commerce-access.pdf (Accessed on 10th July 2021)
- This Women’s Day, Flipkart’s Latest Campaign – #LeadLikeHer Recognizes the Entrepreneurial Spirit of Women. https://storiesflistgv2.blob.core.windows.net/stories/2021/03/6041ddffb03f3-6041ddffb03f6FINAL-Press-Release_-This-Womens-Day-Flipkarts-Latest-Campaign-LeadLikeHer-Recognizes-the-Entrepreneurial-Spirit-of-Women.pdf.pdf (Accessed on 10th July 2021)
- Flipkart recognised by Great Place to WorkⓇ Institute among Top Three Best E-commerce Workplaces In India https://storiesflistgv2.blob.core.windows.net/stories/2021/03/Flipkart-recognised-by-Great-Place-to-Work-Institute-among-Top-Three-Best-E-commerce-Workplaces-In-India.pdf (Accessed on 10th July 2021)
- Flipkart to deploy more than 25,000 Electric Vehicles in its Supply Chain to achieve 100% transition to electric mobility by 2030. https://storiesflistgv2.blob.core.windows.net/stories/2021/02/Final-Flipkart-EV-deploment-in-supply-chain.pdf (Accessed on 10th July 2021)
- Flipkart And MSME Department, Govt. Of Tamil Nadu Partner To Enable Growth For Small Scale Businesses And Local Artisans In The State. https://storiesflistgv2.blob.core.windows.net/stories/2021/02/FINAL-Press-Release_-Flipkart-And-Govt.-Of-Tamil-Nadu-Partner-To-Enable-Growth-For-Small-Scale-Businesses-And-Local-Artisans-In-The-State.pdf (Accessed on 10th July 2021)
- Flipkart And Govt. Of Maharashtra Come Together To Boost The Growth Of Small Scale Businesses And Local Artisans In The State. https://storiesflistgv2.blob.core.windows.net/stories/2021/02/FINAL-Press-Release_-Flipkart-And-Govt.-Of-Maharashtra-Come-Together-To-Boost-The-Growth-Of-Small-Scale-Businesses-And-Local-Artisans-In-The-State.pdf (Accessed on 10th July 2021)
- Flipkart Wholesale strengthens commitment towards kiranas, MSMEs with infrastructure boost for grocery business. https://storiesflistgv2.blob.core.windows.net/stories/2021/02/PRESS-RELEASE_FKW-Grocery-launch-Eng.pdf (Accessed on 10th July 2021)
- Flipkart Receives ISO22301 certification for Business Continuity by British Standard Institute (BSI) https://storiesflistgv2.blob.core.windows.net/stories/2021/01/6006ab3b18976-6006ab3b18979Final-copy_-BSI-lauds-Flipkarts-Business-Continuity-initiatives-awards-ISO-Certification.pdf.pdf (Accessed on 10th July 2021)
- Flipkart’s latest ecosystem partnership makes smartphone purchases more affordable for millions of Indians https://storiesflistgv2.blob.core.windows.net/stories/2021/01/Flipkart-SmartPack_-launch-announcement-release.pdf (Accessed on 10th July 2021)
- NITI Aayog and Flipkart collaborate to enhance Women Entrepreneurship Platform https://storiesflistgv2.blob.core.windows.net/stories/2021/01/FINAL-Press-Release_-NITI-Aayog-and-Flipkart-collaborate-to-enhance-Women-Entrepreneurship-Platform.pdf (Accessed on 10th July 2021)
- Flipkart in partnership with Logistics Skill Sector Council and KSDC to set up Centre of Excellence to bridge the skill gap in the logistics industry https://storiesflistgv2.blob.core.windows.net/stories/2021/01/Flipkart-in-partnership-with-LSC-announces-Centre-of-Excellence.docx.pdf (Accessed on 10th July 2021)
EMAlpha Products and Services
In most Emerging Markets, information discovery is a major challenge. For example, even if global investors do show interest, how do they solve the problem of timely access to information? The world’s largest capital allocators hold USD 60 trillion and they include GPIF (Japan), GPF (Norway), ADIA (Abu Dhabi), GIC (Singapore) etc. However, only 10% of the capital gets allocated to EMs and ~90% goes to G10. The big hurdle for EMs is: Foreign investors cannot access relevant local information in a timely fashion.
Most market participants and investors from across the world realise that the low rates in G10 makes EM attractive for investors. But, a) Information access is usually a cost and time intensive process for investors, and b) In many EMs, language is a big barrier and because of multiple regional languages, there is a significant delay before news makes it to the mainstream English language. To address these issues, you need solutions like, a) Real time news collection from multiple languages and, b) Instantaneous machine translation and text analytics leading to actionable recommendations for investors.
There are further challenges such as ensuring that companies behave responsibly and that they adopt sustainable business practices. There is a need to ensure that the investors are contributing towards making the world a better place by making investment decisions which reward responsible behaviour of companies. Case in point, ESG (Environmental, Social & Governance) which is increasingly being used as a filter for investment decisions. There are other issues as well such as which data to use and a lack of a standardized framework for evaluation.
Some of these issues are too important to be postponed to a later date and it is in this regard that EMAlpha is making its contribution. EMAlpha has developed a Flexible ESG Framework Management System which is a proprietary technology that makes ESG scores framework agnostic, thus allowing for quick adaptation. In addition, the users decide what matters to them and the EMAlpha system does a classification into E, S, G and more granular categories.
EMAlpha also has solutions for Multilingual data collection and real time targeted information which are based on proprietary processes to collect relevant data across multiple markets. The coverage expands across emerging market equity, currencies and commodities and the work has also been very successful in testing the signals in some key markets for live trading strategies. This is a continuous cycle and a virtuous loop that allows for iterative improvement through AI-human feedback.
With developments in AI and technology in areas like NLP, there are considerable new possibilities to bridge the gap in information between Emerging Markets and the more Developed Markets. This is an area which is turning out to be very exciting because some of the tools mentioned were not available even a couple of years ago. This implies that the evolution in the field will only get faster as time goes on. While the Emerging Markets and the Capital Flow Conundrum is a complex one, there is now much more hope and optimism that with the usage of technology, things will only get better.
At EMAlpha, the ESG team is doing further research on why some issues like Social get more prominence as compared to others like Environmental or Governance issues. To look at specific cases in the context of ESG is a very intense yet interesting exercise and this has been an incredible learning experience for the EMAlpha Research team. The data, information and ratings are a humongous challenge for ESG and it takes time to reach to the depth of the issues as the field is evolving very quickly.
EMAlpha is making a solid contribution in tackling these challenges. EMAlpha has solutions for ESG which are practical, user friendly and although not too simplistic yet easy to use. EMAlpha has developed a Flexible ESG Framework Management System which is a proprietary technology that makes ESG scores framework agnostic, thus allowing for quick adaptation. In addition, the users decide what matters to them and the EMAlpha system does a classification into E, S, G and more granular categories.
We strongly believe that the entire ESG ecosystem requires multiple stakeholders to pull in the right direction in order to make it operational and that will be the most critically determining factor for ESG’s success in making the corporate responsibility actually work. Most importantly, the investors should view ‘E’, ‘S’ and ‘G’ individually and should not confound issues when it comes to the comprehensive ESG evaluation. It is important to understand the right reasons behind ESG investing because this bias could hurt their investment decision making and portfolio performance.
EM Alpha LLC
For more EMAlpha Insights on Emerging Markets, please visit https://emalpha.com/insights/. To know how you can use EMAlpha’s unstructured data and ESG (Environmental, Social and Governance) solutions for better investment decisions, please email us at [email protected].
EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) more accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. EMAlpha works on information discovery and ESG solutions for Investors in Emerging Markets, using AI and NLP tech. Our mission is: “To help increase capital flow, in terms of FDI and FPI, to Emerging Markets by lowering information barriers using AI/NLP”. EMAlpha Products help achieve both alpha and ESG solutions and the idea is to help asset allocators, asset managers, banks and hedge funds along with companies with cost and time efficient access to relevant information. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious. Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.
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