IN FOCUS6-8 min read

Why EM is the perfect place for impact investing

Arguably, nowhere offers greater potential for investors to have a positive impact than in emerging markets.



Jonathan Fletcher
Emerging Market Fund Manager and Head of EM Sustainability Research

Investors’ interest in understanding the impact of their investment decisions has never been greater. Nowhere is this more important than in emerging markets (EM).   

The health crisis triggered by Covid-19 has been a reminder of the harsh realities that many people across the world face everyday. According to United Nations (UN) estimates, over 2 billion people do not have regular access to safe, nutritious and sufficient food. 2.4 billion people still lack access to basic sanitisation services, while 20% of children do not have access to formal education.

Many of the affected people live in EM, and the pandemic has exacerbated the existing challenges.  

What is impact investing?

The essence of impact investing is the intention to generate a societal benefit, in combination with a financial return for shareholders and to measure the impact.

The development of the UN Sustainable Development Goals (SDGs) has provided a framework for impact investors to measure the delivery of these aims. There are 17 SDGs, each of which is a call to action, and has 8-12 targets. The development of the SDGs makes the mapping of investment with investor goals clearer and more defined. 

The size of the impact investing market is still very small, at around $715 billion at the end of 2019, based on estimates from the Global Impact Investing Network (GIIN).

GIIN conducts an annual survey, including data from 294 investors who manage a collective 404 billion in impact investments. Of those surveyed, 48% of respondents invest in developed markets (DM), with 43% in EM. The remaining 9% were neither DM or EM focused, defined as allocating more than 75% of total assets to either category. And based on a more focused survey of $220 billion of the impact investing market, only 19% was invested in publicly listed companies. Excluding outliers, EM focused impact investors allocated just 3% to publicly listed companies.

The potential for growth is significant, and is likely to be driven by investor demand to align their values with their investment goals.

Historically, solving these issues has often been left to philanthropy. But there is increasing consensus that market investments can achieve environmental and social, as well as financial goals. 

What do these details at the heart of impact investing mean in practice, and what is the scope for impact investing in EM? In short, we believe it is significant.

Why invest in impact in emerging markets?

Nowhere is there greater need for the resolution of environmental and social issues than in EM. These countries are home to close to 6.6 billion people, equivalent to 86% of the world’s population, based on data from the International Monetary Fund.

And these countries are at greatest risk from the effects of climate change. Of the top ten cities most vulnerable to climate change, nine are in EM countries. Air quality is a concern across many emerging countries. Of the top 50 cities ranked by highest air pollution, 45 are in EM.

Governments globally are responding to these challenges, amid growing public concern. Most emerging countries have signed the Paris Agreement on climate change. But some governments have taken a selective approach with regards to environmental, social and governance issues (ESG). Emerging countries face the biggest challenges, and so the scale of the response required is significant, potentially requiring a review of a country’s economic model.

Without the sharing of technology from advanced nations, there could be negative implications for entire industries, with ramifications for employment and livelihoods. And where hurdles can be overcome, there is the issue of bureaucracy, meaning change can take place at glacial rate; or at least be delayed until the pressure to act is too great.    

Public companies have a critical role to play. Not only through their products and services, but also by the way they manage their operations and their impact on the environment, and who they employ. These decisions can be taken more directly, and at a reasonably fast pace. The potential for investors to have an impact is therefore considerable.

EM companies in general are at early stages in the impact and ESG journey. As a result there is a long term opportunity for investors to participate. The nature of EM means that there is also a broad range of investment opportunities. Providing capital to companies which meet defined investment criteria enables them to grow sustainably, and to have a greater impact in the future.

The risks of investing in emerging markets

While we believe that investors can have greatest impact in EM, it is important to stress the fact that investing in EM can carry higher risk relative to other global markets. This includes the potential for greater political, legal, counterparty, operational and liquidity risks.

The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.

How in practice does this work?

One of the core tenets of impact investing is that the societal benefit should be intentional and measurable, as well as material and sustainable. But what do these criteria mean?

Intentional  is where there is evidence of an intention on the part of a company to solve some of our social or environmental challenges.

Measurable is the need for companies to measure the outcomes for people and the planet from their activities.

Material is the requirement for companies’ products and services to materially contribute to solving one or more environmental or social problems.

Sustainable is the requirement for companies to manage their business with all stakeholders in mind.

These criteria are key to how we think about impact investing in EM. When it comes to investing in companies, we distil them to three key questions:

  1. Societal contribution: Does the company contribute to a better future for all? In order to confirm and identify the societal contribution, we link each company to a primary SDG.
  2. Sustainability: Is the business run for the long term? This underpins the sustainability objective. We only invest in companies that we believe treat all stakeholders fairly and run the business for the long term.
  3. Financial return: Is the stock a good investment? We are looking for companies which we believe will generate sustainable returns above their cost of capital.

To better measure the impact that companies have on society and the environment, we developed our own proprietary tools, including the award winning SustainEx.  

As we mentioned, there is a journey to impact investing in EM. Engaging with companies and encouraging improved practices and disclosures is a fundamental part of this.

Establishing whether companies meet the above criteria, and their commitment to stakeholder outcomes can only be achieved through regular dialogue. Companies’ receptiveness to this engagement alone can be evidence of their commitment to operating in a sustainable way.

In EM, there is often a lack of available data. Bridging this gap is difficult without engagement. It also provides an opportunity to verify what is being presented by companies, avoiding the risk of greenwashing; where companies make bold claims but in practice do not live up to their promises.

What type of investments might meet these criteria?

There is a range of different companies which form the investable impact universe in EM. These may be companies which through their day-to-day business are contributing towards a UN SDG, such as pharmaceutical companies or clean energy technology companies. Others may be evolving the way they run and operate their business in order to contribute to solving societal or environmental issues.  

As investors, we look at a range of quantitative and fundamental factors when analysing opportunities. The examples below are provided as an illustration of how we analyse the above criteria and the companies mentioned are not a recommendation to buy or sell any security. As always, valuation is key. Good companies don’t always make good investments and our comments are not an opinion as to the value of that company’s shares or price.

Headquartered in Brazil, WEG is a global provider of electrical equipment. It is helping to drive increased share of renewable energy solutions and higher efficiency motors, each of which account for around 20% of sales.

Vertically integrated, with its own foundry, WEG is able to replace old motors and re-use the materials. It is also investing in electric mobility, in relation to buses and planes, and energy storage. It provides equipment to the water/sanitisation sector which is in need of significant investment in Brazil. 


Gedeon Richter is a specialist pharmaceutical company based in Hungary. It has a presence in over 38 countries across the world.

The main areas of impact for Gedeon Richter are the provision of specialised pharmaceuticals  for women’s healthcare, the central nervous system and biosimilars. The latter are similar to already approved medicines whose patent has ended. In contrast to generics, these biological drugs which exhibit greater natural variability and are more complex to manufacture.


Samsung SDI is a South Korean company, which is a leading global provider of batteries used in electric vehicles and energy storage systems.

The company has published sustainability reports since 2003. It provides detailed supply chain reports, and has led the industry in terms of auditing and risk assessment in relation to the mining of cobalt. In tandem with the benefits of its main products, Samsung SDI has targets to reduce greenhouse gas emissions, as well as energy use in the production of its batteries.


Covid-19 has magnified the importance of impact investing in emerging markets

We see the potential for investors to have an impact and help solve some of the many global challenges as enormous. The UN SDGs provide a framework to underpin this process, and there is ongoing consensus among governments and companies globally as to its merits. For example, China has announced plans to be carbon neutral by 2060. So policy should provide further support.   

In EM, the impact of Covid-19 has only magnified this need. As the world exits the pandemic, environmental and social issues are likely to gain even greater focus. Better tools to analyse and monitor companies and their operations mean that the power to drive change is in the hands of investors.

Demographic changes are another factor which we expect to drive demand for impact investing. Specifically the looming shift in economic importance as wealth moves into the hands of millennials and Generation Z. These generations are more attuned to issues such as impact and therefore more likely to demand that their investments are more aligned with their values.

The case for impact investing has never been stronger.


Important Information

Any company references are for illustrative purposes only and are not a recommendation to buy and/or sell, or an opinion as to the value of that company’s shares. 

The article is not intended to provide, and should not be relied on, for investment advice or research. 

The views and opinions contained herein are those of the authors, or the individual to whom they are attributed, and may not necessarily represent views expressed or reflected in other communications, strategies or funds.




Jonathan Fletcher
Emerging Market Fund Manager and Head of EM Sustainability Research


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