Steve Triantafilidis
We have been looking at that and started with Asia a couple of years ago, and launched a specific fund. I think it is true that data is an issue, and some of the traditional sources of information available in the developed world are not available in Asia or in emerging markets. This means a lot more effort from analysts to get information from companies, who we found initially were not well equipped to provide answers. But they are starting to at least think about it and starting to develop efforts in that area. So, in integrating ESG, we have had to have the analysts directly look at these companies and look at whatever reporting there is. However, especially in some countries like China, for example, you may not even get normal financial reporting at a high quality. So reporting of data that might be useful in making an assessment and having that corporate sustainability report, for example, is just not there. A lot more involvement is required, which takes time. But I think it will develop there, as it has in other countries.
Elisa Trovato
Asia is a particularly policy-driven market. So does that mean that the key to success is identifying a company which can benefit from government policies? Is that different from the Western World where civil society is demanding and driving forward this process of sustainable development?
Steve Triantafilidis
The problem with emerging markets is that you cannot generalise. The concept of emerging markets has changed a lot in recent times, and I do not think it is possible to compare all of the countries on the same basis. So, there are different levels of government involvement and government direction and different levels of regulations that apply. Some are more advanced than others, and I do not think there is a standard approach to this topic in emerging markets. We have found that we really have to look at it country by country, and company by company within that country.
Joost Bergsma
Asia should offer a sizeable investment universe. In 2010, Asia was the second largest region (after Europe but ahead of North America) in terms of net new investment in new energy, with around $50 billion of new invested capital - - in clean energy. Many leading the solar manufacturers are based in China. A number of the leading Chinese solar manufacturers are listed on the New York Stock Exchange and comply with international disclosure and financial regulations. SoAsia certainly a growing universe of investment opportunities from which private individuals can benefit. Asia is doing its part in hard dollars to comply with clean energy standards.
In my experience, Asian investors would like to invest in their region. So I think this local, Asiandemand for sustainable quality will only grow.
Elisa Trovato
What are the emerging sectors to look at? For example is the sector of electric cars, already very important in China, one to watch?
Joost Bergsma
Clean energy is certainly leading the way. There is a good universe of listed companies in China, but also in Taiwan. Like in Europe, you have, Korean companies doing things quite actively and you have Japanese companies doing things in clean energy.
I would say that the clean energy space, or the electricity space, is certainly a space where I think Asia is doing business.
Steve Triantafilidis
There is also LED (light-emitting diode) which is more advanced in Asia, than it is in a lot of the West. China certainly has a policy on that.
Elisa Trovato
Is it possible to build a fund just based on emerging markets’ sustainable stocks?
Carlos Joly
Natixis has a global fund called Impact Fund—Climate Change, which includes in its thematic approach the mitigation of carbon emissions, adaptation to the inevitable consequences of climate change, and better management of natural resources . Based on the success of this fund, and on the investment potential we find in emerging markets, we are working to launch a similar fund with 100% exposure to emerging markets. We find a sufficiently large number of names to invest in, and in a sufficiently broad spectrum of sectors and countries. Combined with the fact that strong economic growth is occuring in emerging markets, far more than you can expect to happen in mature markets, that provides a very, very compelling investment proposition, because you combine two long-term trends in the world. One is the economic emergence of these markets and the other one is the inevitable consequences of climate change.
It is very interesting to observe that it is not the case that developing countries have closed their eyes to the environmental issues, as is sometimes popularly misconceived. If you look at the national industrial policy of China, you see that they are determined to become a leader in car batteries, and are becoming so. They are determined to become the world leader in wind turbines, and are becoming so. Also, they are determined to become a leader in high speed trains and in mass transit, to the extent that they can compete with the best European high speed train manufacturers. You see that in industry after industry. If you look at the environmental reports of the large trans-national based companies in Asia, Brazil, Argentina and at their Corporate Social Responsibility reports, they are of a not dissimilar quality than those of large trans-nationals from mature markets. So among the large companies, the quality of the reporting has increased dramatically over the last five years and you do not find notable differences amongst the leaders. Where we would like to see more information, of course, is in the mid-cap companies. But that is also a problem in mature markets. There are not many mid-cap companies that provide ESG reports, like the large caps do. In emerging markets you find names that satisfy world-class ESG criteria in forestry and in mining, in transportation and logistics, and in a whole range of state of the art industrial products. From a climate thematic point of view we are able to identify are all the names we need in order to construct a well diversified multi-sector multi-country portfolio.
