Ethical Performance
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investors told emerging markets need a rethink

November 2006

Progress on responsible business practice on the part of companies in emerging market countries has reached a point where socially responsible investors in Europe and the US should be taking a closer interest, a study suggests.

Ethical Investment Research Services, the London-based provider of SRI data to more than 80 institutional investor clients, claims to have identified ‘significant potential opportunities for responsible investment in some emerging markets’ in a study of 50 companies based in 14 countries.

Only 0.1 per cent of SRI funds worldwide are invested in emerging market assets, the International Finance Corporation estimates. That figure excludes the $1.1billion (£580million) that the IFC, which is the world’s largest investor in emerging market equities, invests along SRI lines in this asset class.

Eiris says the findings indicate it is a ‘misconception’ that all emerging market companies are making poor progress on social and environmental issues.
A ‘clear majority’ studied ‘show some evidence’ of addressing the issues, most ‘provided a wide range of extra-financial data’ and several gave ‘significant consideration’ to the area.

The research is published at a time when institutional investors are looking to diversify their equity investments.

Posco of South Korea and China Steel (both industrial metals producers) are mentioned as achieving ‘positive scores’ in a best-in-class analysis of the 50, and Hyundai Motor (automobiles and parts), also a South Korean company, is named for the quality of its CSR reporting.

At a sectoral level, banks did well. Seven of the nine studied achieved a higher rating than some developed-country banks. But oil and gas producers, telecoms providers and chemicals companies lagged significantly behind their counterparts in developed countries, both on disclosure and on CSR activity. Eiris suggests investors apply engagement techniques to raise standards.

The companies were selected by market capitalization and evidence of CSR activity. The largest was Samsung Electronics (South Korea) and the smallest Nedbank, which is South Africa’s third-largest bank by total assets. Getting performance data from the companies was a particular problem for the researchers

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