Hermes Investment Management, the £30 billion asset manager, has published a paper on ESG in emerging markets and it believes that ESG engagement pays off for investors.
Gary Greenberg, head of emerging markets at Hermes, commented: “ESG works. We see plenty of first-hand examples of how successful engagement on ESG risks can improve the financial performance of companies, benefiting society as well as investors.” He added that an academic study, carried out by the University of Reading’s Henley Business School at 131 companies in the mining and natural resources sector, found that average annualised returns were 4.8% higher, with lower risk, at 56 companies where Hermes had conducted engagement, compared to companies where it had not.
Hermes also cited research from its global equities team which found that avoiding the worst performers in corporate governance can add up to 30 basis points a month to returns. It added that the MSCI Emerging Markets ESG Index has outperformed the MSCI Emerging Markets Free Index. Greenberg commented: “As more investors identify themselves as long-term owners of companies, and digital technology makes corporate activities increasingly visible to a larger audience, ESG analysis is becoming recognised as an important concept – particularly in emerging markets.”