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August 31, 2009
Emerging Markets Offer Opportunities for Sustainable Investors
    by Robert Kropp

Research by UBS finds opportunities for investment in renewable energy and sustainable transportation in Asia, and affordable housing in Latin America.


In light of a study of sustainable investing in emerging markets, published this month by the International Finance Corporation (IFC), the sustainable investor interested in emerging markets may find useful data in recently published investment research by UBS Wealth Management Research.

The UBS research paper, entitled "Emerging Market Equities: Sustainable Investment Opportunities", found that as of mid-2008, assets allocated to socially responsible investment (SRI) or sustainable investment exceeded $50 billion in emerging markets. Another $250 billion in assets were managed by mainstream investment managers who consider environmental, social, and governance (ESG) factors.

Referring to the global financial crisis, the USB research concluded that "emerging markets now look set to recover faster than do the advanced economies and they look likely to continue to grow at higher rates." UBS does distinguish between the larger emerging market economies, such as China and India, where losses "have been cushioned by strong domestic demand," and smaller, export-driven economies, where the effects of the crisis have been felt more acutely.

UBS identified several areas in which sustainable investment could prove profitable. South Korea has recently implemented a stimulus program that allocates a majority of its funds to renewable energy technologies, while China intends to increase development of renewable energy sources to 20% of its output by 2020.

Due to their competitive production costs, Chinese companies have come to play a major role in the global solar cell manufacturing market. While most of the production has been devoted to export, the Chinese government is promoting its domestic market for solar technology. India has also implemented policies to promote solar cell manufacturing.

Other areas of development in emerging markets that could be of interest to sustainable investors include sustainable transportation in China and affordable housing in Latin America.

In its research, UBS cited recent studies that found high portfolio turnover in emerging markets, making integration of long-term ESG considerations difficult. Furthermore, standards and disclosure on ESG issues need to be improved, and active ownership practices encouraged.

Overall, UBS concluded, sustainable investors can participate in the growth of emerging markets by "investing in companies that contribute to solving environmental and social challenges in emerging market countries."

 

 
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