An initiative to provide investors in emerging market equities with
better research on the social, environmental and governance performance
of companies has been set up by the International Finance Corporation.
The World Bank’s private sector arm will give research bodies, rating
agencies, index providers and others a total of $500,000 (£285,000) in
grants for ‘new information services geared to sustainable and
responsible investment in developing country firms’.
The IFC hopes the programme will improve the flow of information on the
companies and therefore ‘facilitate an increase in high-quality,
long-term investment in emerging markets’ from pension funds and other
investors. Broadly defined, socially responsible investments are worth
about $2.7trillion globally, but IFC-commissioned research found in
2003 that only 0.1 per cent of this is invested directly in emerging
market listed equities.
‘We know that more and more investors are keen
to invest in the emerging markets, but there is little reliable
information on how emerging market companies perform against such
criteria,’ said Rachel Kyte, director of IFC’s environment and social
development department. ‘The research infrastructure is just not in
place to encourage socially responsible investment in the emerging
market asset class.’
A further difficulty is the ownership structure of listed Asian
companies, with many of the largest controlled by families. Disclosure
of operational risks in the region is also very low. A 228 page study
published last month by the Association for Sustainable and Responsible
Investment in Asia described disclosure levels in the eight industry
sectors it analysed as poor. ‘Asian equity markets will struggle to
value environmental, social and governance issues until both government
and corporate disclosure norms are improved’, Asria said.
The IFC is offering grants to mainstream sell-side analysts and niche
SRI data providers. ‘The idea is to challenge the market to come up
with commercial ideas on the best way to provide good research,’ said
Kyte. Successful applicants will be announced at the end of September.
They will be chosen by a panel of representatives from the United
Nations Global Compact, First State Investments, the World Resources
Institute, the World Federation of Exchanges, Asria, and the
Switzerland-based OnValues investment consultancy. Funding is provided
by the IFC and governments via the IFC’s Sustainable Financial Markets
Facility.
The programme builds on the IFC’s work with the Sao Paolo
stock exchange to create a sustainability index for the Brazilian
market (EP7, issue 10, p5). The IFC said that at this stage there were
no plans to make a further round of grants next year.
A mainstream investor network that encourages sell-side SRI research
has just admitted its first North American members. The CPP Investment
Board, which has $80billion under management and invests funds on
behalf of the Canada Pension Plan, has joined the Enhanced Analytics
Initiative, along with US-based Calvert, which manages more than
$11.8bn. This has increased the value of the assets managed by members
of the network to $920bn (EP6, issue 7, p5).
