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Firstly, we exclude companies that are engaged in activities like tobacco production and fossil fuel extraction, as well as companies with poor corporate governance standards.

Secondly, we strive to identify companies with a superior ESG profile to the benchmark index .

Additionally, we also actively engage with many companies to improve their ESG profile by meeting with them and exercising our board voting rights.

Applying these standards leads to a portfolio for the strategy that offers a superior ESG profile to the index, as well as a strong ranking in terms of carbon footprint and intensity.

¹ Benchmark discussed is the MSCI Emerging Markets Sustainable Leaders

Ultimately, this approach matters because we believe that industry leaders with a good ESG profile will eventually deliver in terms of long-term performance.

Looking at historical data shows that, in EM at least, an ESG focus can deliver stronger performance than the standard MSCI EM benchmark.

One example is a South Korean chemicals company with a growing electric vehicle (EV) battery business.

That company is well positioned to benefit as EV adoption increases as the world shifts to lower emission transportation and sustainable energy systems.

Additionally, we see it being a long-term leader due to its cost and technological advantages against all if not most of its peers and its position as a key supplier to some of the world’s largest carmakers.

Total demand in gwh (LHS) / Annual-o-y increase in global demand (RHS)

What about engaging with sustainable leaders?

Take the example of a food company in China where our ESG dashboard flagged certain risks around disclosure.

We worked with the SI team to review the stock and found that the stock is attractive because of continued market share gain, favorable industry structure driving consolidation and the milk price upcycle lowering competition.

The SI research team identified food quality & safety, energy intensity and water intensity topics as financially material risks to the business, requiring further information from the company on how they manage these risks considering the lack of detailed disclosure.

To follow up on our concerns, the investment team participated in two engagements with the company aiming to evaluate the strength of ESG risk management practices and to encourage greater transparency.

As a result of our engagements, the company has enhanced its profile in the Coller FAIRR Protein Producer Index, a benchmark to assess ESG risks for meat, dairy, and fish producers.

We continue to work with the company on enhanced disclosure, extension of the carbon and water reduction targets to the supply chain as well as Board independence and diversity.

In summary: the EM sustainable leaders opportunity

EM are being driven by megatrends which are creating disparities in the fortunes of companies with strong winners as well as losers.

The key to long-term success in EM is to be able to identify these megatrends and, more importantly, the future leaders & winners and stick with them as these fundamental trends play out.

ESG is a key component behind the long-term success of these leaders in delivering sustainable growth and shareholder value.