ESG for Emerging Markets: Is it a risk or an opportunity?
Synopsis: ESG investing is not just about investing on the basis of the various environmental, social, and governance factors, but for the global institutional asset managers, it also involves the decision about the countries they want to invest in. In emerging markets (EMs), evaluating a country or a company on its ESG performance is a huge challenge for a variety of reasons such as lack of reliable data and complicated disclosures. Apart from that, there are also peculiarities like various regulatory frameworks, relatively more relaxed laws on environmental issues, the complex ownership structure that has important implications for the governance standards, etc… This begets the question: are there funds that are excluding the EMs because of the ESG factors? The answer is yes. There is a view that with ESG becoming a more popular investment filter, the EMs will lag as they would still have to catch up on many of these important environmental, social, and governance parameters. However, we think that it is only one half of the story. Depending on how proactive they are and how quickly they are willing to address these major issues, ESG is also a big opportunity for these countries and many of the issuers from these markets. The reasons being, a) Opportunity for differentiation – For the many EMs and the companies from these markets, ESG is a great opportunity to differentiate, b) Scope for improvement – The investors make the most money in the ‘turnaround stories’ and the companies and countries which are willing to get better will become much more attractive target for the investors, c) Governance is more about intent – In most cases, the governance standards are dependent on the intent and if the policymakers of a country or board of the company take a long term approach, the governance challenges could be addressed, d) Not everyone gets impacted equally due to environmental factors – While it is true that issues like climate change and environmental factors are a bigger problem for the emerging markets as compared to the developed markets, there are many sectors where the impact is minuscule.
The Covid-19 Induced Global Chip Shortage
When Covid-19 hit the world in early 2020, a pall of gloom hung over the global economy and uncertainty ruled the day. The future was pretty much unchartered and countries and companies around the globe started swinging in the dark. The current chip shortage is the result of the unexpected ways in which the global industries’ demand has played out for the chips.
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