Future Investment Initiative (FII) Institute has released its “Inclusive ESG Tool” and accompanying “Inclusive ESG Score” to help emerging market companies and global investors unlock investment.
- Despite a global surge in sustainable investments over recent years, emerging markets receive less than 10% of ESG capital flows worldwide.
- Addressing data gaps in emerging market analysis, the Inclusive ESG Score identifies companies that prioritise ESG factors while fostering long-term sustainable growth.
- The new tool has the potential to help reduce the $5.4 trillion ESG investment gap in emerging markets.
The Future Investment Initiative (FII) Institute, a global non-profit foundation dedicated to tackling global challenges, has unveiled its Inclusive ESG Tool and Score at the annual FII flagship conference to improve the quality of data on ESG in emerging markets and empower companies in these markets to receive financial flows. The initiative has been developed in partnership with ESG Book, a global leader in sustainability data and technology.
Richard Attias, CEO, FII Institute, said: “Our planet faces immense challenges, including global warming, a rapid decline in biodiversity, and an increasingly unbearable cost of living for many. However, we are not without the means to address these issues. Our global financial markets are more interconnected and driven by change than ever before. Investing in ESG (Environmental, Social, and Governance) 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.”
The FII Institute’s Inclusive ESG Tool has been developed to empower companies in these markets improve sustainability efforts and results while helping investors identify current and future performance leaders.
ESG in emerging markets
While there has been a surge in ESG investing over the past decade, with an estimated $38 trillion in sustainability-led assets now under management worldwide, emerging markets continue to receive less than 10% of ESG capital flows, despite accounting for 58% of global GDP.
Interviews conducted by FII Institute with leading global investors have revealed that ESG rating agencies are one of the main barriers to increasing investment in emerging markets, with a core challenge being that many rating agencies use KPIs that are not relevant to emerging markets.
What are the tools?
According to FII, the new Inclusive ESG Tool has the potential to help reduce an ESG investment gap of $5.4 trillion in emerging markets according to analysis of ESG Book data.
In 2022, the Inclusive ESG Framework and Scoring Methodology developed by FII Institute met this need by answering the key question for investors: “What does good ESG performance look like in emerging markets?”
This year, with the unveiling of the Inclusive ESG Tool and Score, FII Institute recognized the need for metrics that are tailored specifically to the challenges of emerging markets.
Its systematic materiality approach emphasizes industry risk, ensuring an equitable evaluation of companies operating within diverse sectors. To promote transparency and accuracy, the score differentiates performance and disclosure analytics.
Based on the new score, FII Institute and ESG Book have co-developed a Top 250 Inclusive ESG Ranking to identify the most sustainable emerging markets companies.
One of the strongest benefits of this launch is growing recognition that different companies have different opportunities and risks dependent on where they operate. If social, environmental and governance is going to be effectively integrated into the risk analysis of every investor, the different challenges faced in different regions is going to have to be integrated too. While standardisation and robust metrics are central to success, so too is the ability to have a nuanced and differentiated view of what different sectors, geographies and companies face.