ESG pressure takes center stage at 2021 Emerging Markets Institute conference

A tumultuous and trying year has brought some positive change to the world, panelists and presenters agreed at this year’s Emerging Markets Institute conference. According to new research from the institute, emerging markets are making notable progress in their environmental, social, and governance (ESG) efforts.

Hosted by the Emerging Markets Institute (EMI) at the Cornell SC Johnson College of Business and held at the Cornell Tech campus in New York City, this year’s conference brought together 450 attendees and speakers from 41 different countries on November 5, 2021. Taking place right on the heels of the COP26 climate summit and the IFRS Foundation’s introduction of the International Sustainability Board earlier in November, the EMI event was centered on a timely theme: the future of ESG excellence.

To kick off the day’s discussions, Lourdes Casanova, senior lecturer and Gail and Rob Cañizares Director of EMI, shared key findings from the 2021 Emerging Markets Multinationals Report: Building the Future on ESG Excellence (EMR 2021), which she co-authored. As the pandemic subsides and global economies recover, emerging markets have a central role to play not only in reviving growth and rebuilding the middle class, but also in driving global ESG efforts, the report suggests.

Lourdes Casanova

Credit: Majid Aliyev Photo

Lourdes Casanova

The increasing power of emerging market economies puts them under greater pressure from investors to act on the ESG commitments they’ve made and the mandates they now face. What’s more, over the past 18 months, the COVID-19 pandemic raised awareness around social inequalities like disparities in access to healthcare, while extreme weather events-including record-breaking snowfall in Madrid, European floods, and an unprecedented dust storm in China-continued to underscore the urgency around acting to mitigate climate change.

The result of all these converging factors? Investors and consumers are holding companies in emerging markets increasingly accountable for their ESG practices.

The evolution of emerging markets

In EMI’s first report, 2016 Emerging Market Multinationals Report: China Surge, researchers identified a group of top-20 emerging economies characterized by their growth, development, GDP, population, and influence, dubbed the E20. That E20 list has transformed somewhat over the last five years.

Specifically, while China remains an emerging market as defined by researchers’ criteria, its status as the second-largest economy and one of most innovative countries in the world set it apart from the other countries on EMI’s E20 list. This led the authors of EMI’s 2021 report (EMR 2021) to refer to the emerging markets as E20+, with “+” indicating China. “China is a special case. It’s in its own category,” explained Anne Miroux, EMI faculty fellow and EMR 2021 co-author, who joined the conference remotely.

As emerging markets mature internally, they’re shifting the global business landscape, as well. For example, the U.S. has long dominated the Global Fortune 500 with the highest number of firms listed. This year, China surpassed the U.S. with 135 companies, compared to 122 U.S. companies, EMR 2021 revealed.

With this increased influence, emerging markets are taking big strides towards doubling down on their ESG efforts, Miroux explained. Most of the E20+ countries have made notable progress. For example, the number of Principles for Responsible Investment (PRI) signatories from emerging economies increased by 50 percent in 2020 alone. In fact, emerging economies now account for about 12 percent of all signatories, EMR 2021 states. ESG is at the core of PRI, a set of six principles developed in 2006 by investors for investors and supported by the UN Environment Programme Finance Initiative and the UN Global Compact.

Firms in emerging markets also account for about 23 percent of the UN Global Compact business signatories-Brazil leads with 714 companies. And of the 108 partners of the 2021 Sustainable Stock Exchanges (SSE) Initiative, about 50 are in emerging and developing economies.

Key contributing factors driving these positive ESG changes include the shift in public opinion towards greater environmental and social awareness; access to greater financial opportunities as investors favor businesses taking ESG actions; and domestic policies, regulations, and frameworks aimed at strengthening ESG.

Lack of ESG metrics hinders impact investments

Despite promising growth with regard to ESG initiatives, challenges and opportunities for the E20+ to do more remain. One of the biggest obstacles today is poor availability and quality of ESG data, which limits investment firms’ ability to identify investment opportunities as well as their willingness to take a risk by pouring money into emerging markets, said EMR 2021 contributor Piotr Mazurkiewicz, lead environmental and social policy and risk officer at the International Finance Corporation.

Piotr Mazurkiewicz

Credit: Majid Aliyev Photo

Piotr Mazurkiewicz

Emerging markets can, potentially, develop a healthy business cycle: Greater impact investing can incentivize companies in E20 countries to take more ESG actions, which would then drive investments, propelling the cycle forward. To attract those initial investments, companies must integrate consistent, measurable ESG practices throughout their operations and standardize their ESG data, according to Mazurkiewicz.

“Investment decisions are based on publicly available information, but if you look at the current environment, the reality is this space is very messy and chaotic. It’s time to get serious. Without the data, it’s very tough to make investment decisions and emerging markets are missing out,” Mazurkiewicz said.

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