A Needle in a Stack of Hay


New York – For several years now, environmental, social and governance (ESG ) issues have been in the agenda of companies, investors and policy makers. Recent developments, especially regarding environmental regulations and corporate governance scandals, have dragged investors’ attention to ESG research. However, research users are finding significantly lower levels of coverage for companies in emerging markets. As of today, seeking for comprehensive coverage on ESG research on medium and small cap companies in emerging markets is like looking for a needle in a stack if hay.

According to Integrity’s database, the current coverage of companies in emerging markets is significantly lower than the one on global market companies. A recent study dives deep into the ESG performance of large companies in emerging markets finding that they perform as well, or sometimes better, than their counterparts in developed economies in issues related to the environment. However, the study shows that companies in emerging markets need to improve their social and governance performances.

Although it has the potential of being a chicken-and-egg argument, a possible explanation for the underperformance of these companies in social and governance issues is precisely the lack of coverage they are currently receiving as opposed to the coverage in global markets.

This article explores the possible relationship between the low level of screening and the underperformance of emerging market companies on social and governance issues.

ESG Research Widely Covers Global Markets – as opposed to emerging ones-

Integrity’s database, which monitors the independent research space globally, currently includes 46 providers of ESG research around the world. Emerging market companies are covered in two ways:

  • a) By international ESG research firms, mostly located in Europe and North America, which offer global coverage.
  • b) By firms, located either in the field or abroad, which focus on specific emerging markets and offer exclusive coverage of the companies in these regions.

Integrity’s database currently includes 18 companies offering global ESG coverage, which provide screening to emerging markets. Interestingly enough, Integrity’s data shows that the largest portion of ESG firms focus, exclusively, on global markets (i.e. Western Europe, North America, and Japan). In fact, there are 21 ESG research firms specialized on developed economies, while there are only 5 firms that offer specialized coverage of emerging markets.


Source: Integrity Research Associates LLC .

The disproportionate lower number of firms covering the ESG space in emerging markets might be part of the explanation for these companies’ underperformance in social and governance issues.

ESG Practices in Emerging Market Companies

A recent study by the Social Investment Forum, EIRIS, and SIRAN, three organizations advocating for the integration of ESG research with investing practices, covers the ESG performance of the 40 largest companies in 10 emerging markets. The study highlights the areas of over and under performance of these companies within the ESG space.

The study, published last March, analyses the ESG space in emerging markets as companies in those regions struggle to compete with companies in the global market. The study looked into the top four companies by market capitalization in each one of 10 emerging markets, including Brazil, China, India, Indonesia, Israel, South Korea, Malaysia, Mexico, Russia and South Africa.

When exploring the ESG space in these 40 companies, the study focused on the following criteria:




Climate change



Human rights

Supply chain

Health & safety


Board practice



The four key findings that resulted out of the analysis are summarized below: (taken from the report A Review of ESG Practices in Large Emerging Market Companies)

  • Companies scored better in environmental areas than in social or governance ones. Some companies reached grades on a par with developed country environmental leaders in environmental performance and systems.
  • Climate change disclosure remains an area where emerging market companies lag in establishing good reporting practices.
  • Companies in higher impact sectors, including those in the resources sectors, performed better on issues such as health and safety and environment, where the risks are typically higher.
  • Public disclosure of key governance issues was high, including director remuneration (33 out of 40 companies), and the separation of the roles of chair and CEO (28 out of 40 companies).
  • The selected South African and Brazilian companies stood out overall as consistently having the highest assessments among the companies sampled. These countries also developed some of the first responsible investment indices in emerging markets, acknowledging investor interest with ESG performance.

Arguably, emerging markets companies will not allocate extra resources to improve their performance on social issues, governance, and disclosure of climate change without some external pressures. We have witnessed how these external pressures materialized in the US and the EU through legal instruments and increased coverage from research firms, among some others, motivating some companies to improve their performance. The little current screening on emerging market companies adds up to the lack of legislation (and the lack of effective implementation of existing legislation) that characterizes some of these regions not only in the market sphere, but in most of the other social spheres.

The lack of coverage, hence, can potentially be part of the explanation for the poor performance of companies in emerging markets. Conversely, companies in global markets have improved their performance in these areas, in part, as a response to continuous screening by independent research firms and the consequent exposure to investors.


Even though ESG issues in emerging market companies are currently being covered by a (small) number of firms, there is an imbalance in the coverage of these firms in comparison to the coverage of their peers in the global markets. This imbalance might be part of the explanation to the underperformance these firms showed in social issues, governance, and climate change disclosure.

Some might argue that the low coverage of emerging market companies is caused by their underperformance and the low interest by investors in these markets, which will leave us in the midst of the chicken-and-egg argument. However, investors do (occasionally) show interest in emerging markets. A better coverage of the ESG space in these regions could potentially move their companies to improve their current performances.


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