Values-Based Investing Demonstrates Acute Success in Emerging Markets

So-called values-based investing, better known in days past as socially-responsible investing, involves making decisions about which stocks to buy and sell in consideration, at least partly, of the company���s track record with respect to environmental , social, and corporate governance (ESG) issues. It has not, however, been a popular paradigm for many investors, historically.

The knock on this kind of investing has been the tepid (at best) returns realized from applying great weight to these factors. In other words, the predominant view is that investors have been best-served by paying attention to the underlying fundamentals of companies, as well as the markets, overall, and that such should be the limit of what is evaluated on behalf of prospective portfolio transactions.

As it happens, that outlook may be changing.

According to an article at CNBC.com, while values-based, or ESG, investing is still struggling to gain traction in developed markets, it is showing signs of resonating with folks who are investing in those parts of the world still working toward full economic maturity. A look at the data reveals that while the broad-based MSCI Emerging Markets index was up 9.7 percent over the 12-month period ending October 31, the MSCI Emerging Markets ESG index rose 14.7 percent during the same time.

While there is no clear-cut explanation for why ESG-based investing has been yielding such beneficial results in emerging markets, one theory says that investors see companies with high ESG scores as having greater sustained viability in economic environments that are more distressed, inherently. Such a difference (between companies with low and high ESG scores) is not going to be as great in developed markets, it is thought, where even those firms that do not place an explicit premium on ESG factors are still more likely, by virtue of the broad culture in which they operate, to fall on the right side of values-oriented considerations.

By Robert G. Yetman, Jr. Editor At Large