Emerging market managers gain greater stock-specific alpha from ESG approach

ESG criteria makes difference to returns

Emerging market managers have highlighted the added value of incorporating ESG criteria into their investment processes, as research shows this has been a stronger source of stock specific alpha for funds investing in the region compared to developed counterparts.

According to a recent report entitled The Value of ESG Data: Early Evidence for Emerging Markets Equities, written by investment consultancy firm Cambridge Associates, the MSCI EM ESG index outperformed its EM parent index by a cumulative 12% on a total return US dollar basis from launch of the live index in June 2013 until June 2016.  Meanwhile, the MSCI World ESG index showed barely any divergence from its parent over this period. The report's authors noted selection based on ESG quality may favour particular styles, often quality and growth over value, or disproportionately avoid c...