ESG Investing is Helping to Keep Emerging Markets Afloat

Emerging markets (EM) have been feeling the effects of the coronavirus pandemic, but one area that has been able to help keep their fortunes afloat is within environmental, social and governance (ESG) investing.

Per an article, the “World Bank’s International Finance Corporation estimates that 30% of impact funds have invested in emerging markets, compared to 20% of conventional funds. However, the GIIN survey suggested that the coronavirus pandemic had created some uncertainty about their appetite for emerging market risk.”

“Of those who responded that they were looking to reduce their investment as a result of the coronavirus (20% of respondents), the overwhelming majority had assets in emerging countries,” the article added. “On a more positive note, 58% of all respondents were looking to invest in sub-Saharan Africa in response to Covid-19, the highest figure globally; Latin America came in second with 41%.”

Investors looking to get into EM can use the Goldman Sachs MarketBeta Emerging Markets Equity ETF (GSEE). GSEE seeks to provide investment results that closely correspond, before fees and expenses, to the performance of the Solactive GBS Emerging Markets Large & Mid Cap Index.

The fund invests at least 80% of its assets in securities included in its underlying index, in depositary receipts representing securities included in its underlying index and in underlying stocks in respect of depositary receipts included in its underlying index, which consists of equity securities of large and mid-capitalization issuers covering approximately the largest 85% of the free-float market capitalization in emerging markets.

“Green bond issuance in emerging markets saw a sharp increase in 2019, rising to US$52 billion – a 21% increase, according to a joint report published by Amundi and the International Finance Corporation (IFC),” a Funds Europe report noted. “Over the same period, the global green market saw a record of $240 billion in issuance. The figure accounts for 3% of total global bonds issued in 2019. Since 2012, 35 emerging markets have issued green bonds with five making their debut offerings last year, according to the Amundi-IFC Emerging Market Green Bond Report.”

Broad-based ESG exposure can be had with funds like the Vanguard ESG U.S. Stock ETF (ESGV). ESGV seeks to track the performance of the FTSE US All Cap Choice Index, which is market-capitalization weighted, as well as composed of large-, mid-, and small-cap stocks of companies located in the United States that are screened for certain ESG criteria by the index sponsor, which is independent of Vanguard.

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