April 26, 2023

In April 2022, we launched an internally managed strategy in the Active Emerging Markets Equity Fund. The strategy provides cost and operational efficiencies for clients, while allowing us to use our deep expertise to capture long-term growth opportunities through internal, active management. It also enables us to expand our in-house emerging markets experience. During the development of the strategy, we focused on tailoring our ESG analysis to the unique considerations for emerging markets. Jean-Christophe, Managing Director, Global Emerging Markets, describes how ESG was integrated into the strategy from the outset.

Why is ESG important in emerging markets?

Emerging markets are at the forefront of systemic issues like climate change. However, emerging markets have generally not yet reached developed markets’ level of sophistication in terms of regulation, disclosure, corporate governance, and other ESG considerations. ESG data is also more scarce and less reliable in emerging markets. As a result, risks of ESG-related financial impacts can be higher than in developed markets, both at the company and country levels. This is why it is important to integrate ESG throughout our investment process.

How did BCI build ESG into the strategy?

We incorporated ESG principles while drafting the strategy’s initial business plan, helping establish our embedded approach to ESG from day one. Close collaboration between BCI’s dedicated ESG and investment teams ensured we fully considered ESG at the company, sector, and country levels. When we launched the strategy, we built tailored analytical tools to assess ESG data and analyze the investment universe for ESG considerations.

How is ESG factored into ongoing management?

With our ESG colleagues, we continually review the emerging markets landscape through an ESG lens and anticipate shifts that could impact the portfolio. A member of the ESG team participates in our daily meetings to exchange insights and discuss our engagement strategies with companies. Each quarter, we conduct a global ESG review of the portfolio and openly discuss ESG risks and opportunities in the investment universe.

For each investment, we analyze expected returns and ESG considerations. For example, governance can be challenging in emerging markets. We flag issuers where managers are trading shares of their own companies. We encountered this twice in 2022 and reviewed the implications with our ESG colleagues. In the case of one company, the poor practices eroded our conviction and the stock was not selected for the portfolio. Through engagement with the second company, we were able to influence improvements and continue to hold the stock in our portfolio.