Emerging Asian Companies Show Low ESG Ratings but Increasing Receptiveness for Change
Companies in emerging Asia have low ESG ratings but are increasingly willing to embrace change, according to Kunal Desai of GIB Asset Management. Desai highlights the potential for shareholder returns in making sustainability a priority and discusses the value of engagement in driving positive change. He emphasizes the importance of truly active investing in emerging markets and the potential for businesses to improve their fundamentals and value through sustainable practices.
GIB AM’s Emerging Markets Active Engagement Fund Focuses on Asia, Latin America, and Saudi Arabia
The GIB AM Emerging Markets Active Engagement fund primarily invests in Asia, with a particular focus on China and India. Desai highlights the growth potential and increasing interest in sustainability in the Indian market, as well as the attractive investment opportunities in Latin America and Saudi Arabia. The fund seeks out high-quality businesses that are undervalued due to sustainability, governance, and operational issues which can be fixed through engagement.
India’s Journey into Sustainability and Renewable Energy
India is making significant progress in its journey towards sustainability and renewable energy. Desai points out that four years ago, sustainability was not considered a core focus in India, but now companies are recognizing the competitive advantages and lower cost of capital associated with sustainability. The government’s supportive policies, technological advancements, and improved access to finance have all contributed to the shift towards renewable energy in India. Desai highlights the growth potential in power generation from solar and wind sources in the country.
GIB AM’s Investments in Sustainable Businesses in India
GIB AM’s fund holds investments in businesses that are focused on improving sustainability in India. Desai mentions one of their largest positions in the building materials space, which has re-engineered its approach to sustainability and incorporated clear, credible targets for reducing emissions. This has led to inclusion in an emerging market index and attracted a lower cost of capital, ultimately benefiting shareholders. The fund looks for companies with aligned management teams and a strong framework for effective engagement.
Engaging with Companies in Emerging Markets
Engagement is a key component of GIB AM’s investment strategy, with all 33 positions in the fund actively engaged with to drive meaningful change. Desai notes that engagement in emerging markets differs from other markets and requires a proactive, holistic approach. In India, companies understand the value of engagement in improving free cash flow and attracting lower cost of capital. Businesses with aligned management teams and significant shareholder ownership or incentivization are particularly receptive to engagement efforts.
Kunal Desai’s Favorite Sustainable Drink: Nuisance Drinks
In a lighthearted ending, Desai shares his favorite sustainable drink, Nuisance Drinks. The botanical soft drink uses stinging nettles as a main ingredient, highlighting how a perceived nuisance can be transformed into something valuable and tasty. Desai praises the entrepreneurship and creativity in the sustainable drinks industry.
Analyst comment
Positive news: Emerging Asian companies show low ESG ratings but increasing receptiveness for change. Market analysis: With companies embracing change and prioritizing sustainability, there is potential for improved fundamentals and value. Investing in Asia, Latin America, and Saudi Arabia offers attractive opportunities in undervalued businesses. India’s progress in renewable energy presents growth potential. GIB AM’s engagement strategy drives meaningful change and benefits shareholders. Sustainable businesses in India with clear targets attract lower cost of capital. Overall, the market is poised for positive change and potential returns.
