- Sustainability has long been an issue in developed countries and is now of interest in emerging countries too.
- Studies show that companies with sustainable business practices not only do good for the environment, but also gain real economic advantages.
- The potential for the positive effects of sustainable management is particularly high in emerging markets, according to a study.
83 %
of people surveyed in the Asia Pacific region expect companies to help improve the environment. In Europe the figure is only 68%.
Every year 57 to 80 billion pairs of chopsticks are sent on a journey, only to land very quickly in the trash[1]. Chopsticks made of plastic or wood are included in nearly every food order transported by innumexpeerable delivery services. That’s the practice, despite the fact that the Chinese already have sufficient reusable utensils at home or at work. Are disposable chopsticks an environmental problem? Not so long ago, companies would have laughed it off. In the meantime, however, many are reconsidering and sending along chopsticks only when they are expressly requested. Sustainability is advancing not only in China but in many emerging countries.
The three criteria of sustainability are summed up in the acronym ESG, which stands for Environment, Social and Governance. Companies that take these matters into consideration help the environment and the economy, according to a study by the Boston Consulting Group[2]:
- New markets can open up for companies.
- The focus on sustainability plays a part in promoting corporate innovation and developing cost-efficient products and services.
- Uniform social and labor standards help minimize the risk of industrial accidents and have a positive effect on customer and investor acquisition.
- That applies to emerging markets in particular. Consequently, investors look very closely at whether companies consistently integrate sustainability practices in their operations.
Three figures, one for each of the ESG criteria, exemplify the concrete benefits.
[1] The Diplomat, “Cutting Chopsticks from Chinas Food Delivery Waste”, as of May 2019, https://thediplomat.com/2019/05/cutting-chopsticks-from-chinas-food-delivery-waste/
[2] BCG, “Total Societal Impact”, October 2017, https://media-publications.bcg.com/BCG-Total-Societal-Impact-Oct-2017.pdf
Criterion E – Environment
More than 50 percent of the world’s Smart Cities (highly networked, digitalized urban areas) are located in China. Smart Cities improve the local climate through intelligent traffic control, energy and waste management[1]. That’s not all. The planning and construction of cities of the future increase the efficiency of the local economy[2] by incorporating state-of-the-art logistics and technology.
Criterion S – Social
With a targeted policy, it took India nearly 10 years to reduce poverty by half[1]. Those efforts will continue, according to India’s Prime Minister Narendra Modi. Among other things, lower poverty rates mean less social tension and greater buying power for the economy. Right now about half of Indian households belong to the middle class, which is expected to increase to 80 percent by 2030[2].
Criterion G – Governance
Currently, 78 percent of companies in the Asia Pacific region (in 2011 it was only 49 percent) report annually not only about revenue or research expeditures, but also about their activities in corporate governance, such as their treatment of employees[3]. Investors then can assess which companies are making progress in sustainability. Those are the only companies fund manager Sean Taylor wants to have in his DWS Invest ESG Global Emerging Markets Equities portfolio. For sustainably managed companies in particular have the potential to grow into market leaders with strong balance sheets.
[1] Oxford Poverty and Human Development Initiative, University of Oxford, “Global Multidimensional Poverty Index”, as of August 2018
[2] Bain & Company, “How India will consume in 2030: 10 Mega Trends”, as of January 2019, https://www.bain.com/insights/how-india-will-consume-in-2030-10-mega-trends/
[3] KPMG, “The Road ahead: The KPMG Survey of Corporate Responsibility Reporting 2017”, as of October 2017
What pays off is a view that extends beyond economic potential alone. Deutsche Bank, for example, analyzed more than 2,000 empirical studies and concluded[1] that consideration of ESG criteria has a positive effect on corporate financial performance, especially in emerging markets. Sustainability in emerging markets? This topic for the future has arrived in the here and now.
[1] Gunnar Friede, Timo Busch, Alexander Bassen, “ESG and financial performance: aggregated evidence from more than 2000 empirical studies”, as of December 2015, https://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917