ESG pressure in the spotlight at the 2021 Emerging Markets Institute conference

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

Hosted by the Emerging Markets Institute (EMI) at 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. just after The COP26 climate summit and the IFRS Foundation’s introduction of the International Sustainability Board earlier in November, the EMI event focused on a hot topic: the future of ESG excellence.

To kick off the day’s discussions, Lourdes Casanova, Senior Lecturer and Director of Gail and Rob Cañizares of EMI, shared the main conclusions of the 2021 report on emerging market multinationals: Building the future on ESG excellence ( EMR 2021), which she co-wrote. As the pandemic abates 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 spurring global ESG efforts, the report suggests.

The growing power of emerging market economies is placing increased pressure on them from investors to act in accordance with the ESG commitments they have made and the mandates they now face. Additionally, over the past 18 months, the COVID-19 pandemic has raised awareness of social inequalities such as disparities in access to healthcare, while extreme weather events including record snowfall in Madrid, flooding in Europe and an unprecedented dust storm in China, continued to underscore the urgency of taking action to mitigate climate change.

The result of all these converging factors? Investors and consumers alike 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 the top 20 emerging economies characterized by growth, development, GDP, population, and influence, dubbed E20. This E20 list has changed somewhat over the past five years.

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

As emerging markets mature internally, they are also changing the global business landscape. For example, the United States has long dominated the Global Fortune 500 with the highest number of listed companies. This year, China has overtaken the United States with 135 companies, compared to 122 American companies, EMR 2021 revealed.

With this increased influence, emerging markets are making great strides in stepping up ESG efforts, Miroux explained. Most of the E20 + countries have made notable progress. For example, the number of signatories to the Principles for Responsible Investment (PRI) in emerging economies increased by 50% in 2020 alone. In fact, emerging economies now account for around 12% of all signatories, according to EMR 2021. ESG is at the heart of the PRI, a set of six principles developed in 2006 by investors for investors and supported by the United Nations Environment Program Finance Initiative and the United Nations Global Compact.

Emerging market companies also account for around 23% of companies that are signatories to the UN Global Compact – Brazil leads the way with 714 companies. And of the 108 partners of the 2021 Sustainable Stock Exchanges (SSE) Initiative, around 50 are in emerging and developing economies.

The main factors contributing to these positive ESG changes include the shift in public opinion towards greater environmental and social awareness; access to greater financial opportunities as investors favor companies taking ESG measures; and national policies, regulations and frameworks aimed at strengthening ESG.

Lack of ESG measures hamper impact investing

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

Emerging markets have the potential to develop a healthy economic cycle: higher impact investing can encourage companies in E20 countries to take more ESG measures, which would then stimulate investment, propelling the cycle forward. To attract these upfront investments, companies need to embed consistent and 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 that this space is very messy and chaotic. It’s time to get serious. Without this data it is very difficult to make investment decisions and emerging markets lack them, ”said Mazurkiewicz.

Learn more about the Emerging Markets Institute’s 2021 report and conference on Cornell SC Johnson College of Business News Site.

Maria Minsker ’13 is an economics journalist who writes regularly for Cornell SC Johnson College of Business.


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