JUNE 2021

ESG QUICK TAKES

The investor perspective on ESG in Emerging Markets

INTRODUCING CARTICA'S MONTHLY NEWSLETTER

Cartica is pleased to introduce a monthly email on evolving environmental, social, and governance (ESG) issues in Emerging Markets. We aim to be a resource for companies, and we hope this note helps illuminate key global ESG issues and the fast-changing expectations of global public equity investors.

In this issue, we give an overview of what investors typically evaluate when conducting ESG due diligence in Emerging Markets. Stay tuned next month for our focus on best practices in corporate governance and the Board of Directors.

ESG ANALYSIS: WHAT DO INVESTORS EVALUATE?

Investors increasingly integrate ESG factors into investment analysis because they believe they can reduce risk and create value in their portfolio by doing so. What are some key areas that they’re thinking about when evaluating the quality of a company’s ESG integration?

Concentrate On Materiality

Investors want to know companies are spending time reducing risks and developing opportunities specifically in areas that create the most long-term value. An ESG materiality analysis can help to identify priority areas.

3 Key Items: Practices, Policies, and Disclosures

After identifying material areas of focus, investors typically evaluate the quality of a company’s ESG practices, the policies that formalize those practices, and the public disclosures that allow them to assess risks and opportunities.

ESG Ratings Matter

Investors often consult ESG rating services (like MSCI and Sustainalytics) when deciding whether to include a company in their strategy. Ratings agencies are becoming particularly important as passive investing and index funds grow. Because of this, it’s increasingly imperative for companies to disclose information on material ESG factors, so that it can be integrated into the ratings agencies’ evaluation.

Standardized Reporting Frameworks Can Help

Ideally, ESG disclosures should be aligned with standardized global reporting frameworks, such as the Sustainability Accounting Standards Board (SASB), the Global Reporting Initiative (GRI), or the Task Force on Climate-related Financial Disclosures (TCFD). This helps investors more easily understand disclosures and compare peer companies.

Improvement Is More Important Than Perfection

Investors know that no company is perfect in managing ESG risks and opportunities. In fact, some investors believe they can create value by helping companies to improve ESG management over time. Investors often do want to see that a company is on a positive trajectory toward better ESG integration.

CHART OF THE MONTH: GLOBAL SUSTAINABLE FUND ASSETS NEAR USD 2 TRILLION

Global sustainable fund assets approached $2 trillion in 1Q'21, according to Morningstar. European-domiciled funds investing globally account for the majority of assets, but increases in sustainable AUM have been seen in every market.

TOP 3 MUST-READS THIS MONTH

ImpactAlpha: Companies in Emerging Markets are getting on board with board diversity, by Cartica's Kate Ahern

Mondaq: SEBI widens its ESG based reporting net for India

WSJ: Europe's carbon border tax plan looms over global trade

CONFIDENTIALITY AND SECURITY NOTICE: This communication, including attachments, is for the exclusive use of addressee and may contain proprietary, confidential and/or privileged information. If you are not the intended recipient, any use, copying, disclosure, dissemination or distribution is strictly prohibited. If you are not the intended recipient, please notify the sender immediately by return email, delete this communication and destroy copies. Cartica Management, LLC and its affiliates ("Cartica") retain all proprietary rights they may have in the information. We cannot give any assurances that this email or any attachments are free of viruses or other harmful code, and emails are susceptible to corruption, change, interception and delay. We reserve the right to monitor, intercept and block all communications involving our computer systems. Please note that the contents of this email should not be construed as investment advice unless explicitly stated as such in the text of the email. Further, any information contained herein is neither an offer to sell nor a solicitation to buy any interest in any fund that may be advised by Cartica. An offer can only be made by the approved offering memorandum, which contains important information concerning risk factors and other material information and must be read carefully before any decision to invest is made. Finally, please note that (to the extent that performance information is contained in this email) - past performance is not necessarily indicative of future returns.