“’Ethical’ Investing in Emerging Markets?” –The Wall Street Journal – October 5, 2014

An article published in The Wall Street Journal on October 5, 2015 posits that “socially responsible investing around the globe isn’t easy” yet notes that “many ESG investors see long-term opportunity in emerging markets, arguing that better governance will improve performance.”

Unfortunately the article revisits the same clichés and conventional wisdom about emerging markets SRI. One analyst quoted notes that challenges arise “when these companies aren’t listed on a US stock exchange and their disclosures aren’t in English.”

It should not come as a surprise that the overwhelming majority of emerging market companies are not listed on a US stock exchange. Isn’t diversification one element of both emerging market investment and SRI?

Furthermore, whereas English-language disclosure is a challenge per se, the situation is much more nuanced than the analyst’s simple statement. Emerging market bluechips increasingly disclose in English, either due to investor demand or (self)-regulatory requirements – albeit perhaps in less detail and later than in the native language. (Not all of these bluechips have dual listings in the US or elsewhere.) Smaller listed companies generally have fewer foreign investors and therefore do not have experience investor demand for English-language disclosures. Cognizant of the English-language disclosure gap, a growing number of rating and research firms provide English-language environmental, social and governance (ESG) data on emerging markets companies. Specialized firms provide information about a range of issues, including conflict minerals, reputational risk and supply chain management. Furthermore a number of initiatives – including the Sustainable Stock Exchange Initiative – have been working for years to improve ESG disclosure in emerging markets. Finally, most microfinance initiatives are made in emerging markets; isn’t microfinance ethical investment and SRI? All of these should have been addressed in the article, which instead simply rehashes arguments to support the thesis that it is next to impossible to engage in SRI in emerging markets.

Ethical investing and SRI exist in emerging markets – today. The question mark in the article is no longer valid. Challenges exist, but there are already numerous mechanisms that forward-thinking investors can utilize to overcome these challenges. The greatest obstacles appear to be ignorance, lethargy and parochialism.

You may read the article on The Wall Street Journal online.