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Eurosif Theme Report Emerging Markets: Insights for Investors

Philippe Spicher, CEO Inrate

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Content

•The context of Sustainability in Emerging Markets

•Latest insights from ESG Research

•Conclusion and recommendations for investors

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EM economies … a challenging context

•Big powerhouses with large economies, markets, resources and populations experiencing high growth rates

•Growth is an essential requirement to reduce poverty, but growth at any cost can generate problems (pollution, over exploitation of ressources, unequal distribution of income,…)

•Increased environmental pressure, employees and consumers are more demanding on social and consumption issues

•Investors can play a role by ensuring their capital is contributing to sustainable growth

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… with opportunities for companies and investors

•Major technological and infrastructural investments will be required (eco-efficiency, health, education, mobility, products safety,…)

•Companies in emerging markets can aspire to leading market positions if they are able to anticipate ESG trends and position themselves as committed partners and solution providers

•A deeper recognition by investors of the impact of ESG factors can lead to better risk-control and over-performance in EM (inefficient markets)

•Investors have a prominent role to play here by creating the right incentives towards sustainable development

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Some Signs of ESG Integration in EM

•Externalities are increasingly being internalized (governments enacting more regulations)

•Increase stimulus packages by governments to drive technological innovation

•Public opinion and new media can make a difference (pressure on companies with suppliers in EM)

•Strikes, food crisis, boycotts, labour shortages are pointing to the need for more stable social contracts between societies and business

•Sustainability is increasingly part of stock exchanges regulations

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Latest insights on ESG research on EM

• Since 4 years we analyse ESG integration on 700 companies in over 20 EM markets

• Over 150 ESG criteria monitored (some sector specific)

• External media sources to spot unsustainable behaviour or practices

• Research partners in EM• Recent studies and projects:

Capacity building project for Vietnamese Asset Manager

Sustainable Investment in Latin America - case study

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ESG integration – Global Overview

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Better disclosure but improved accountability needed

BEST PRACTICE CASE DISCLOSURE ISSUES

MAHINDRA GROUPIndia, Automobile sector

The Mahindra Group is among the top ten industrial houses in India operating in the sectors of automobile, steel, finance, healthcare, and information technology.

The group is committed to disclose ESG integration in a yearly Sustainability Review report. Its sustainability reporting covers 92% of group’s operations and has been externally verified by Ernst&Young according to ISAE 3000 (International Standard for Assurance Engagements).

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Environmental Issues

BEST PRACTICE CASE ENVIRONMENTAL ISSUES

SAPPI LTD, Paper & Forest Products, South Africa

Sappi Ltd. is a global paper and pulp company involved in the production of coated fine paper used in books and many other print applications.

On the environmental side, in South Africa, Europe and North America the company publishes papers profiles and information detailing key environmental parameters. Moreover Sappi has achieved certification by the three most internationally recognised forest products certification programmes (FSC, SFI®, PEFC) and has green procurement programs applicable to all contractors.

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Social Issues

BEST PRACTICE CASESOCIAL ISSUES

Companhia de Saneamento Basico do Estado de Sao PauloWater Utilities, Brazil

The company provides sanitation services and supplies bulk water to the state of Sao Paulo serving, directly or indirectly, over 26 million people.

On social issues, the company has implemented a group wide policy on labour issues for employees and the collective bargaining process is an important tool of participative management. To ensure compliance with the ethical issues the company has an Ethics Committee and an internal Whistle-blowing Channel that allowed to a significant decrease in the number of ethical breaches and implement necessary actions where appropriate. On community engagement, the company holds meetings to identify the major issues and needs of local municipalities that particularly in Sao Paulo are constituted by high concentrations of low-income populations (properties with unauthorized connections, intermediation in collection of debts at low-income communities, guidance on the rational use of water, proper use of collection networks, and river clean-up).

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Governance IssuesSELECTED BEST PRACTICE CASE –GOVERNANCE ISSUES

Wimm-Bill-Dann (WBD) is the market leader in dairy products and children’s food in Russia and one of the leading players in the market for non-alcoholic drinks in Russia and the CIS. The company has more than 35 production facilities in Russia, Ukraine and Central Asia and employs more than 18,000 people.

On governance issues, WBD scores well above its peers, both in a Russian and in a general emerging market context. While some improvements could be made in compensation disclosure, WBD display a majority of independent directors (meeting NYSE’s definition of independence) and a separate chairman and CEO position. Finally, our view is supported by Standard & Poor's corporate governance score that attributes a 7+ grade on a scale from 0 (the worst) to 10 (the best).

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Recommendations for investors & conclusion

• Reward transparency and commitment to sustainable development; Monitor unsustainable corporate practices

• Take into account the various stages of development in emerging markets

• Identify “pure players”

• Multinationals can be inspiring leaders in local markets

• Participate in collaborative networks or initiatives (CDP, UN-PRI, GRI, governance codes, stock exchange SRI indices)

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Contact information

Philippe Spicher, CEO Inrate philippe.spicher@inrate.com

Inrate – a leading European sustainability rating agencyInrate Ltd is a leading independent sustainability rating agency active in Europe. It is based in Switzerland and was created through the merger of Centre Info Ltd and INrate Ltd in 2010. Inrate has more than 20 years of experience in linking its know-how on sustainability with the financial markets. At present, Inrate covers about 2600 companies worldwide and provides tailor-made solutions for investors who wish to consider ESG issues in their investments – either on the grounds of socially responsible investment or with the aim of minimizing extra-financial risks in traditional investment. More information: www.inrate.com.

Sophie Rahm, Eurosif sophier@eurosif.orgEurosif – Developing Sustainability through Financial MarketsEurosif (European Sustainable Investment Forum) is the pan-European network and think-tank whose mission is to develop sustainability through financial markets. Eurosif acts as a partnership of the national Sustainable European Forums (SIFs) within the EU and with the support and involvement of Member Affiliates. Recognised as the premier European forum for sustainable investment, Eurosif’s Member Affiliates include institutional investors, financial service providers, academic institutes, trade unions and NGOs. The association is a not-for-profit entity that represents assets totaling over €1 trillion through its Member Affiliates.