Advisory Partners

The FT Moral Money Forum is supported by its advisory partners, High Meadows Institute, Vontobel and White & Case. They help to fund the reports.

The partners share their business perspective on the forum advisory board. They discuss topics that the forum should cover but the final decision rests with the editorial director. The reports are written by a Financial Times journalist and are editorially independent.

Our partners feature in the following pages. Each profiles their business and offers a view on ESG and emerging markets. Partners’ views stand alone. They are separate from each other, the FT and the FT Moral Money Forum.

Where to find growth, diversification, and impact? Emerging markets

Asha Mehta, CFA and CIO, Global Delta Capital, author of Power of Capital and co-chair of High Meadow Institute's Investment Industry Leaders Forum

With more than half the globe’s footprint, most of the planet’s population and the world’s fastest growing economies, emerging markets represent an unparalleled opportunity – particularly for ESG investors.

Indeed, the asset class offers scope not only for outsized alpha but also outsized impact. It gives a chance to implement sustainable investing with non-concessionary returns: from integration, to positive tilts, to impact.

Countries in emerging markets have higher levels of corruption and greater socio-political risk, so it is no surprise that the implementation of ESG criteria can lead to higher payoffs than in developed markets.

For example, investing with management oversight and integrity in mind has to be a winning strategy. Big data gives us the tools to evaluate companies and countries: global news feeds can be parsed in minutes to identify a source of controversy.

Investors may find emerging markets a rewarding experience, too. Necessity is the mother of invention and promising advances in alternative energy happen in countries where access to traditional energy sources is limited.

Finally, the lower development base in emerging markets provides ample opportunity to deliver impact. The UN Sustainable Development Goals are particularly relevant here. There is a $5tn funding gap that needs to be filled to extend prosperity around the globe. Investments into this region can help bring about the infrastructure required to improve living standards, narrow inequalities and allay climate and health vulnerabilities.

As government leaders, multilaterals and the private sector unite to try to fill the gap, more than half of the world’s SDG investment opportunities are in the emerging markets asset class.

History shows that the quest for productivity, innovation and social security can transform communities and sovereign economies. In past decades, economic liberalisation has fuelled foreign investment. Examples of the power of invested capital abound:

• In Brazil, years of military rule gave way to a liberalised economic system that bolsters businesses and brings better lives for millions of people. Advances in fintech are particularly promising.

• Romania’s shift from communism to capitalism has reshaped the landscape. Look at the country’s advanced car technology and top-notch outsourced “software as a service” platforms.

• In India, the education of a generation, especially girls, combined with investment in technology have transformed this hot, crowded country into a global leader in solar and other technologies.

As we seek growth and diversification around our incredible planet, global investors might further embrace the power of capital, not just to generate an attractive return but also to build a global ecosystem that is prosperous, peaceful and free.

* High Meadows Institute’s views are separate from other advisory partners, the FT and the FT Moral Money Forum

The best way to navigating the ESG complexity of emerging markets

Christel Rendu de Lint, deputy head of investments and member of the global executive board, Vontobel

Emerging markets – at the coalface of ESG solutions?

When asked to weigh in on the debate about whether ESG investing is bad news for emerging markets, it is worth pausing to think about how many assumptions are packed into that one question. First, it assumes a single and universally accepted interpretation of ESG; second, it assumes uniformity among emerging markets; third, it creates a dichotomy between “good” and “bad” that is not necessarily helpful: if a company does not yet meet ESG standards and we wish they did, is this “bad” or is it a chance to bring about positive change?

Where we can make a difference

At Vontobel, we operate according to four ESG investment principles. Our investment process incorporates ESG considerations because we believe, over time, that this best enables our clients to achieve their investment objectives. As active investors, we make use of the tools of engagement and voting to perform our fiduciary duty as stewards of our client’s capital. Our investment teams are accountable for the application of our ESG investment principles, and we commit to transparency through disciplined disclosure, reporting and dialogue.

As investors and investment advisers, it is our job to understand nuance. When it comes to ESG and emerging markets, nuances abound. We do not define an investor’s appetite for ESG or emerging markets. Instead, we enable investors to find a mix of investments that empowers them to build the future they want in line with personal and financial aspirations. Our clients and the companies in which we invest can benefit from our experience in understanding the relationship between ESG and investing in emerging markets.

Exclusion or improvement?

Let’s return to the question at hand: is ESG bad news for emerging markets? This depends on how ESG is interpreted and applied. If ESG criteria are used as an exclusionary filter – to rule-out certain business activities or other norms-based criteria – then it is important to ensure that the context is considered and the buck is not passed (literally) to investors that are less concerned about broader societal issues.

At Vontobel, we recognise that emerging markets are often in the high-pressure zone of climate risks and demographic pressures. Rather than avoid areas with complex societal challenges and some of the most acute ESG concerns, we acknowledge that these are places where transformation can bring the biggest impact. In fact, emerging markets can be seen as the coalface of solutions.

Given that some investors will take a more activist approach, we see value in providing a range of strategies at different ESG-ambition levels, and in explaining and positioning them clearly to our investors. I’ll go back to the question and rephrase it: if we believe in one of the underlying principles of ESG – that it helps to address social and environmental challenges – then can we afford to look away from emerging markets, which generally face more complexity when it comes to ESG?

Working together is the only way

There is no right or wrong answer to our question. Instead, the answer lies in working harder, together, to advance ESG in emerging markets. Many of the challenges we face are global, such as the environmental effects of climate change. While urgent action has to be taken in many of these areas, we must also ask the big-picture questions.

Is it fair to penalise individual companies for policies and a legal backdrop set by a sovereign state or national government? Or, to pose another question that risks controversy, can the discussion about ESG be seen as the west imposing its solution for the world’s problems onto the east and global south? The responses will be complex and different but that is exactly what we need as we assess the way our world works, including how we conceptualise, talk about and invest in both ESG and emerging markets.

As a multi-boutique firm, Vontobel is poised to provide investors with both a macro and micro view of the multi-challenged world.

* Vontobel’s views are separate from other advisory partners, the FT and the FT Moral Money Forum

Climate change targets will only be achieved if both developed and emerging markets work together, as we will see at Sharm El-Sheikh

White & Case ESG team

Notwithstanding the threat of an economic downturn, the momentum that drives the focus on ESG strategy is accelerating. The Financial Conduct Authority and the Financial Reporting Council recognised this trend in their assessments on the quality of first-year reporting of premium-listed companies by the Task Force on Climate-related Financial Disclosures. They found that companies are treating climate-related considerations as risks without adequately balancing such risks against the considerable opportunities.

Striking the appropriate balance is easier said than done, especially when directors feel much less confident in emerging areas, such as the requirements for climate-related disclosures. It is natural and prudent to be averse to risk.

International regulators have pushed forward with mandating and standardising ESG disclosure, with the EU pressing ahead with the Non-Financial Reporting Directive, the Sustainable Finance Disclosure Regulation and the Climate Transition Benchmarks Regulation. There is also the EU Taxonomy Regulation, EU Green Bond Standards, the Corporate Sustainability Reporting Directive and EU ecolabel extension proposals.

The rapid strengthening of EU disclosure regimes is driven by policies to enhance investor comfort and encourage European businesses to improve ESG performance, both in their own operations and value chains.

On the flipside, there are no mandatory disclosure regimes in the US, and federal regulators have been hesitant to follow the EU’s example. There has been considerable political pressure against pro-ESG investments. While the Securities and Exchange Commission has proposed climate disclosure rules, the risk is that adoption of such rules could lead to litigation that challenges the SEC’s authority based on the “major questions doctrine”, as recently seen in the West Virginia vs Environmental Protection Agency court case.

Emerging markets – with their perceived additional ESG-related risks – may in the short-term miss out on investment. However, the Paris Agreement targets and the Sustainable Development Goals can be achieved only if developed and emerging market stakeholders work together. This will be one of the headline topics to be addressed at COP27 in Sharm El-Sheikh, Egypt, in November.

Providing higher quality, reliable (and non-boilerplate) disclosure is critical to reducing the risks entailed in emerging markets investment. In parallel to regulatory risk, recent spates of naming-and-shaming press reports have increased reputational risk for companies who may “get it wrong” in their approach to ESG.

Investors may benefit from collaborating with external experts to develop knowledge and drive better-informed decisions on which projects are best aligned with commitments to internationally recognised principles and standards.

Investors can apply responsible investment approaches aided by increased regulatory intervention through the introduction of mandatory due diligence legislation. Examples are Germany and Norway and the EU’s proposal for a directive on corporate sustainability due diligence. The draft directive ensures the effective prevention and mitigation of potentially adverse effects on human rights by placing companies under an obligation to prioritise engagement with suppliers and other business relationships throughout the value chain, instead of using termination as a last resort.

The hope is that once investors realise how they can mitigate the perception of ESG risk by applying responsible investment approaches to emerging market investments, they can reap the financial and reputational rewards of gaining exposure to growing economies. This will not only diversify their portfolios but create long-term impact too.

* White & Case’s views are separate from other advisory partners, the FT and the FT Moral Money Forum