Socially Responsible Investing Around the Globe Isn’t Easy
Monday, October 6, 2014
Emerging markets may not be the wilderness they once were for “socially responsible” investors.
Most investors lured by the glint of growth in markets like Brazil, South Africa and China accept the greater political, currency and liquidity risks in those markets, compared with more developed markets. But so-called socially responsible investors—who seek to marry long-term competitive financial results with social objectives—have to tangle with yet another risk in emerging markets: the relative lack of disclosure and universal reporting standards, which could make it harder to dig out unethical corporate behavior.
In recent years, data available for vetting investments in developing markets has become more sophisticated and more widespread. Many funds perform due diligence and use shareholder activism to push for greater disclosure and more ethical corporate practices in emerging markets.
Much debate has swirled in academic and investor forums over whether limiting investments to suit social objectives affects performance. But contrary to modern portfolio theory—which suggests portfolio constraints would restrict performance—experts haven’t found clear evidence indicating as much for socially responsible funds over the long term.