ESG, Abroad: Emerging Market ESG ETFs Are the Next Frontier | ETF Trends

Environmental, social and governance (ESG) investing has the potential for worldwide appeal. The space has already proven it can withstand a market downturn and better yet, outperform during a pandemic, which will help the case for ETFs like the Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF (ESEB).

ESEB seeks investment results that correspond generally to the performance, before fees and expenses, of the J.P. Morgan ESG EMBI Global Diversified Sovereign Index. The fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the underlying index.

The index generally aims to keep the broad characteristics of its parent index, the J.P. Morgan EMBI Global Diversified Sovereign Index, resulting in a broad emerging markets sovereign debt market exposure with ESG aspects. ESEB’s expense ratio comes in at 0.35%, which is less than the 0.46% category average.

ESEB Chart

The Geographical Appeal of International ESG

Christian Nolting, Global Chief Investment Officer and Head of Wealth Discretionary at Deutsche Bank Wealth Management, spoke to ESG’s geographical appeal in an article entitled Environmental Times: Why Investors Will Keep Pushing into ESG:

“The application of sustainable investment principles and investor interest in ESG investment has varied around the world in recent years,” Nolting said. “Europe has been seen as a leader, followed by the United States.  Now interest in ESG is broadening out, not just within individual markets but across geographies. Interest in ESG investment in Asia, for example, has been growing fast, confounding old “received wisdom” about why ESG would be less applicable in the region. We should remember that ESG investment has, of course, overcome similar arguments in developed markets such as Europe and America over the last few decades.”

“The difficulties in applying ESG principles will, of course, still vary between regions,” said Nolting. “It is probably more difficult to apply ESG principles in regions that are growing very fast (as many Asian economies have been, at least until recently). The very diversity of large geographic regions can also conceal significant ESG progress in individual countries. But where there are difficulties, there are also positive drivers. Many emerging economies, for example, have a growing middle class that may have an increasingly positive attitude towards sustainable investing. The obvious dangers that environmental factors pose may also be very visible to such populations. Rising sea levels increasingly concern not only small islands but also some highly developed economies. Another advantage for many Asian economies is the region’s strong technology base, which could help implement much ESG investment (and also provide data to assess its impacts).”

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