Environmental, social and governance (ESG) investing has been a boon to investors looking for gains amid the Covid-19 pandemic—something that emerging markets (EM) can’t attest to the past few months. However, what happens when you add a dash of ESG into EM—will the former compensate for where the latter is lacking in terms of performance?
Enter the Xtrackers MSCI Emerging Markets ESG Leaders Equity ETF (EMSG )—the fund seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Emerging Markets ESG Leaders Index. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index, which is a capitalization weighted index that provides exposure to companies with ESG performance relative to their sector peers.
MSCI EM ESG Leaders Index consists of large and mid-cap companies across 24 EM countries. The Index is designed for investors seeking a broad, diversified sustainability benchmark with relatively low tracking error to the underlying equity market.
For investors who want the ESG performance, but also the EM diversification aspect in one fund, EMSG is a prime alternative as opposed to simply picking equities that give you exposure to both sectors. With the pandemic still affecting a majority of the globe, investors have to walk on proverbial eggshells when investing in EM.
“This is a crisis unlike anything we’ve seen and we cannot just go back to our old textbooks anymore that say ‘go buy the dip’,” said Thu Ha Chow, a money manager at Loomis Sayles Investment Asia Pte, in a Bloomberg report. “The social and governance elements are going to be more important, but they can be harder to find in emerging markets.”
The fund, in essence, does the due diligence for you if you’re looking for ESG with a dash of EM exposure—something that’s paramount with the Covid-19 pandemic still remaining a market uncertainty.
Per the Bloomberg report, “companies and governments in many emerging markets are not legally obliged to disclose as much ESG information as they are in developed nations. This has led to worries that lower standards, or greenwashing by companies that don’t have measurable rules could prove disastrous for investors.”
“You need to have your own proprietary fundamental research,” said Claire Peck, an investment specialist in London at JPMorgan Asset Management, with $1.9 trillion in assets. “You have to be more research-intensive as an investor because of that lack of transparency and also lack of coverage by major ESG providers.”