Inclusive ESG ranking aims to support sustainable investment into emerging markets

A new tool ranking ESG strategies and disclosures within emerging market firms aims to drive more sustainable investment into developing economies – many of which have so far been left behind in the climate transition.

The inclusive ESG score and tool unveiled today by non-profit Future Investment Initiative (FII) Institute aims to help companies in emerging markets improve their sustainability results and share them with global investors to access finance.

Equitable finance and the just transition are recurrent topics at climate conferences, but low and middle-income countries still get only about one fifth of the US$1.3 trillion of global energy transition investment, according to the UN Environment Programme (UNEP). In terms of overall ESG capital flows, FII Institute estimates that just 10% goes to emerging economies.

Financing costs in these countries are also up to seven times higher than those in the US and Europe, with many facing what UNEP calls a “climate investment trap, where the high costs of capital that limit financial flows are due in part to limited experience with these markets”.

Addressing the sustainability data gap

With its new ranking, FII Institute hopes to help address the sustainability data and financing gap in emerging markets. The cloud-based tool is based on a methodology developed last year as a response to mainstream rating agencies, whose KPIs were deemed less relevant to emerging market conditions.

It scores companies on their current sustainability performance, as well as disclosures and anticipated future performance.

“Our global financial markets are more interconnected and driven by change than ever before. Investing in ESG initiatives plays a pivotal role in the solution. These funds should be strategically directed toward emerging markets where their impact is most needed, all while ensuring the returns necessary for the vitality of these markets,” said Richard Attias, CEO of FII Institute.

Top-score companies include South Africa’s Mondi (packaging), India’s Hindalco Industries (mining), Malaysia’s Fraser & Neave (food and beverages) and Brazil’s BRF (meat and poultry).