ESG integration on emerging markets

• Autor(a) principal: Pratas, Luis Manuel Grilo
• Data de Publicação: 2020
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10362/104706
• topic: ESG integration; Emerging market; Fundamental analysis; Negative screening; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

In this paper, we examinedthe best practices of incorporating ESG information on investment decisions on Emerging Markets securities.There were two different types of ESG incorporation assessed: through scoring methods and in fundamental analysis.Regarding the scoring methods, we testedtwo different negative screen strategies using the controversies ratings of Sustainalytics. From this exercise, we discovered improvement of the overall risk of the strategy portfolios, but a weaker financial performance. Since the abnormal return (alpha) is not statistically significant, we concluded that financial performance is only influenced by the overall decrease of portfolio risk (beta). In fundamental analysis, we applied an integration framework from the CESGA training program on a case-study of a Brazilian utility company.Our final recommendation is an integrated approach to ESG, centring on ESG incorporation through fundamental models and, also, on active ownership. Since Emerging Markets (EM) firms have inferiordisclosure and transparency levels relative to advanced economies firms, we believe that the regular and direct contact with the firms’ management teams, as the incorporation of sustainable issues on valuation models, becomesmore crucial in achieving a better understanding of companies within their business and cultural context.