Investment in socially responsible government bonds: Emerging market sustainability update 2022
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Emerging market sustainability update: 2022
Over the past several decades, emerging markets have become increasingly integrated into the global financial system. Against a backdrop of historically low interest rates in developed markets, higher-yielding emerging market government debt (‘emerging debt’) gained growing interest from investors. As a result, the growth of emerging market government debt outstanding (excluding China) has outpaced that of advanced economies over the past twenty years (including China, the gap is even larger).
Given the growing importance of socially responsible investing (SRI) and the higher risk typically associated with emerging market assets, it is important to be able to assess whether emerging debt meets certain sustainability criteria related to economic stability, good governance, and environmental and social impacts. In connection with the SRI funds offered by KBC Asset Management, in this research report we present an update of the KBC Emerging Markets Sustainability Barometer (made end-2021), produced by screening an extensive group of emerging markets to arrive at a ‘Best-in-Class’ socially responsible investment universe.
To qualify as ‘Best-in-Class’ within the emerging markets screening, a country must, at a minimum, rank in the top 35% of countries screened. We then apply further criteria in that a country must not rank among the 10% worst performing countries for any of the five pillars that make up the sustainability barometer score, must not rank within the top 50% of KBC’s list of ‘controversial regimes’, and must meet the criteria of the Central Labelling Agency.
This leaves us with 18 emerging markets in which the KBC SRI funds can invest: Slovenia, the Czech Republic, Estonia, Lithuania, Slovakia, Latvia, Hungary, Croatia, Poland, Romania, Greece, Chile, Bulgaria, Mauritius, Uruguay, Costa Rica, Georgia and Montenegro. Central and Eastern Europe scores very well: 11 of the 18 selected countries in the SRI universe are from this region.