The majority of emerging market countries are improving on ESG criteria – but analysts still face issues to do with data standardisation which makes it harder to get a clearer look-through.
According to research by NN Investment Partners, 56 emerging market countries improved their ESG scores between 2016 and 2019, while 16 countries have seen their scores deteriorate.
Countries highlighted as “high achievers” were Armenia, Croatia, Georgia, and Malaysia, which were noted for the speed of their improvement.
Scores were based on ESG factors including climate, working conditions and rule of law.
Marcin Adamczyk, head of emerging market debt at NN IP, said: “ESG factors can positively or adversely impact financial performance. On the sovereign level, they can affect economic growth, public finances, and borrowing costs, for example.”
The firm noted that data issues were prevalent in emerging markets and said it had used ‘big data’ supplemented by qualitative inputs from analysts to produce country-level ESG scorecards.
There was a lack of mandatory data gathering and disclosure for sovereign issuers, making data to do with government debt difficult to standardise, NN IP said.
This has evolved to some extent, but there is “significant” room for improvement in areas such as coverage and consistency of data points, according to NN IP.