Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life.

For today’s Soundbites, we’re talking ESG with investment specialist Rob LeDoux. Rob joins us from J.P. Morgan Asset Management, a subadvisor to Canada Life. We talked about ESG and emerging markets, reporting transparency, and we started by asking about the difference between ESG integrated funds and sustainable funds.

Rob LeDoux (RL): I’m happy to answer that, but would like to note that this response and all of my responses on this podcast include general information and do not contain any investment, fund or strategy specific information. So, ESG integration is the systematic inclusion of financially material ESG factors in both our investment analysis and investment decisions. Sustainable investing represents a broad set of opportunities that clients may choose to implement, based on explicit portfolio objectives.

Do emerging markets face bigger ESG hurdles?

RL: The availability and credibility of financial disclosure, especially related to ESG factors, varies widely across both regions and sectors, making it difficult for investors to compare companies across the asset class. As such, we believe that investing in emerging markets can present higher hurdles for investors but alongside that, it’s our view that it presents opportunity as well.

Regions that offer greater investment opportunities.

RL: We’ve found interesting opportunities across the asset class. This includes information technology companies in Taiwan, select financial companies in South Africa and India, which are enabling financial inclusion, and consumer companies in Brazil. Given the sheer number of listed companies available to choose from in China, we’ve also found opportunities there amongst consumer-related companies.

The socialization of ESG factors.

RL: The trend of ESG reporting is improving. In fact, if you look at 2020, 86% of the CSI 300 constituents produced ESG reports. And that was up from 49% in 2010. The content of these ESG reports in China is still highly qualitative, while quantifiable metrics —which we believe is important for investment analysis – are still limited. But these reports are improving.

Engagement with management.

RL: We believe engagement with management is important. We conduct engagements with certain companies to better understand what their motivations are and understand their thought processes. It serves as a give and take.

Management board refreshment.

RL: Board diversity and independence is an important factor when considering the overall view of a company. In an ideal scenario, we prefer there be diverse views and healthy debate as companies make decisions about their long-term strategies and approach. There is a risk that differing viewpoints diminish over prolonged periods, and as such we have, from time to time, voted against long-serving directors at various companies.

And finally, sustainable investing trends in emerging markets.

RL: From a stock-level perspective, we’re seeing more companies adopt ESG reporting and ESG goals and targets. As mentioned earlier, we believe this will eventually evolve from more qualitative to quantitative reporting, which will better help investors measure progress for companies over time. From a larger trend perspective, we see a growing number of companies from EM involved with moving towards new energy, such as electric vehicles and solar. We also see interesting opportunities in the consumer space, where companies are looking to minimize their carbon footprint by reducing unnecessary packaging. And in financials, where companies are utilizing technology to bring financial services to underserved populations. In our opinion, the availability of sustainable opportunities is improving within emerging markets, and we believe this will create interesting opportunities for those investing in the asset class.

Well, those are today’s Soundbites, brought you by Investment Executive and powered by Canada Life. Our thanks again to Rob LeDoux of J.P. Morgan Asset Management.

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