A coalition coordinated by the World Benchmarking Alliance (WBA) has urged asset managers to review and adjust their approach to sustainable investing to ensure it does not inadvertently lead to divestment from emerging markets. Organisations joining the call included the New York City Comptroller, Prudential, Ninety One, the Institutional Investors Group on Climate Change, Pensions for Purpose, and the UN Principles for Responsible Investment. Growing evidence suggests that ESG-related policies and sustainable investment strategies adopted by financial institutions may discourage investment in emerging markets and developing economies (EMDEs) due to perceived higher ESG risks, the call to action stated. Yet, EMDEs are home to 85% of the global population, account for over half of global GDP, and contain most of the world’s natural resources. “By 2050, six of the seven largest economies in the world are projected to be EMDEs,” the WBA said. “Significant capital is needed to support [their] sustainable transition, achieve the UN Sustainable Development Goals, and drive economic development in these regions.” To ensure sustainable investing helps, rather than hinders, capital flowing into EMDEs for environmental and social purposes, the alliance – in collaboration with asset owners, asset managers and investor groups – developed best practice guidance, including region-specific transition pathways and engagement strategies. “Investing in EMs presents challenges like governance issues and high carbon intensity, often resulting in investors shifting focus to developed markets,” said Bruna Bauer, Research Manager at Pensions for Purpose. “However, incremental improvements and active engagement can enhance transparency and drive economic and social progress. Investments in these markets can capitalise on opportunities such as demographic shifts and the energy transition funding gap. By adopting strategic approaches and fostering transparency, investors can unlock significant impact potential, contributing to sustainable long-term growth.”
