70% of rivers and lakes are substantially polluted
80% of household sewage is not treated
30% of rivers cannot even be used for agricultural or industrial purposes
190 million cases of illness each year caused by polluted water
Trend in global primary energy consumption (IEA) Source: IEA
G-20 countries with highest climate vulnerability 10 0,45 Japan 8 0,53 Australia 8 0,53 France 7 0,54 USA 6 0,55 Saudi-Arabia 4 0,62 China 4 0,62 South Africa 3 0,69 Brasil 2 0,70 Indonesia 1 0,74 India Rank Score Source: HSBC, 2009
High economic growth will continue and improve the living conditions… Source: IMF Source: UNCTAD
Quality of life – Sarasin Country Sustainability Rating Source: Bank Sarasin 2010 / based on data from 2006
China in July scrapped preferential power rates for energy-intensive industries.
Beijing has ordered 2,000 firms in heavy industry to close their old plants by end September, or risk having bank loans frozen and power cut off.
In August, electricity supply for 500 energy intensive companies in the province of Anhui was cut by the government: Companies did not meet efficiency targets.
More than 1,000 energy intensive enterprises in Anhui were advised to restrict electricity use from October to December.
Young entrepreneur: "I had to shut down my online shop for two weeks because I had no power for my computer."
Enterprises in Jiaxing (Zhejiang province) have to stop using electricity from the grid at least two days each week to meet conservation targets. (Side effect : increased demand for diesel for backup systems)
=> Probably not a sustainable solution in each case
In May of this year Chinese workers began to protest/strike for better remuneration in several companies (Foxconn, Hyundai etc.).
Wages were not below the legal minimum, but were not living wages. Many workers had therefore to do a lot of overtime.
Such protest is new and similar protests were cracked down by the government in the past. The government is currently more reluctant, because it knows that low wages could lead to more widespread unrest and strategically wants to improve domestic consumption.
Wages were substantially increased (50%+).
+ Labour shortage: In southern coastal regions and Beijing
Conclusion: Good working conditions become a competitive factor in emerging markets
Chinese workers flex their muscles
The more sustainable companies will have a competitive advantage
This new growth paradigm rewards companies for being more responsible and long-term thinking.
Additionally, a sustainability screen for emerging markets makes also sense because:
A good environmental and social performance is also an indicator for a well organized, transparent company that is able to manage risks.
ESG information on emerging market companies is used by few investors. It is not yet – or only partially – priced into company valuations.
Sustainable investments in EM will see strong growth; progressive companies will benefit from this investor demand.
More sustainable companies will therefore have a competitive advantage. High environmen-tal + social risks Trend to more sustainable development More sustainable companies Less sustainable companies
Country allocation MSCI Emerging Markets Index Source: MSCI, 31.10.10 16% 13% 11% 8% 7% 6% 4% 2% 2% 3% 1% 2% 2% 2% 18% China Brazil Korea Taiwan India South Africa Russia Mexico Malaysia Indonesia Turkey Chile Thailand Poland Colombia Peru Philippines Egypt Hungary Czech Republik Morocco
The investment process - example Emerging market universe 751 Stocks* * Data as of 01.10.2010, for illustrative purposes only The portfolio manager selects 50 stocks within the sustainable investable universe, based on the criteria of high volatility and low correlation, and weights them equally. The portfolio is rebalanced at monthly intervals and the stock selection is actively reviewed. Using mainly raw data provided by our research partner Asset4, our sustainability analysts screen the EM universe of companies along Sarasin criteria Investable universe 110* e.g. Sarasin Sustainable Equity - Global Emerging Markets Fund 50 Research universe 420* Stock selection Sustainability validation
Same criteria and weightings for the sustainability assessment of EM companies as for their counterparts in the developed markets.
Comparison with their international peers.
We enlarged the eligible area of our Sustainability Matrix
We included the Hong Kong and Singapore stock markets
As in all our sustainable investment products, we exclude the stock of any companies that generate more than 5% of their revenues from:
Chlorine and pesticides
Genetic engineering (in agriculture)
How does our research work in the emerging markets?
Assessment of companies: the Sarasin Sustainability-Matrix® high low average Corporate sustainability Sector sustainability Best-of-classes Adaptation to EMMA countries Investable universe Non-investable universe Best-in-class High Average Low
To ensure investability, we slightly expanded the eligible area
Distribution of rating classes Emerging Markets Developed Countries Source: Bank Sarasin 9% 2% 21% 24% 45% 25% 20% 32% 17% 6% above average average below average low high above average average below average low high
Country distribution of the sustainable universe vs. the MSCI Emerging Markets index Source: Bank Sarasin
Sustainability ratings of selected emerging market companies
Perfect timing for starting to use a sustainability screen for investments in EM. Companies start to get rewarded for sustainability!
The share of sustainable companies is still lower than in developed markets, but there are many companies that comply with strict sustainability criteria. Not surprisingly for EM, they are catching up fast.
Some adaptation of the investment universe was necessary, but no need to substantially lower sustainability criteria.
There are specific ESG issues in emerging markets. But, most of these issues are known from the sustainability analysis of multinationals (supply chain!).
Nevertheless, the availability and quality of information/reporting needs to be improved.
This marketing publication has been prepared by Bank Sarasin & Co. Ltd, Switzerland, (hereafter “BSC”) for information purposes only. It contains selected information and does not purport to be complete. This document is based on publicly available information and data (“the Information”) believed to be correct, accurate and complete. BSC has not verified and is unable to guarantee the accuracy and completeness of the Information contained herein. Possible errors or incompleteness of the Information do not constitute legal grounds (contractual or tacit) for liability, either with regard to direct, indirect or consequential damages. In particular, neither BSC nor its shareholders and employees shall be liable for the opinions, estimations and strategies contained in this document. The opinions expressed in this document, along with the quoted figures, data and forecasts, are subject to change without notice. A positive historical performance or simulation does not constitute any guarantee for a positive performance in the future. Discrepancies may emerge in respect of our own financial research or other publications of the Sarasin Group relating to the same financial instruments or issuers. It is impossible to rule out the possibility that a business connection may exist between a company which is the subject of research and a company within the Sarasin Group, from which a potential conflict of interest could result.
This document does not constitute either a request or offer, solicitation or recommendation to buy or sell investments or other specific financial instruments, products or services. It should not be considered as a substitute for individual advice and risk disclosure by a qualified financial, legal or tax advisor.
This document is intended for persons working in countries where the Sarasin Group has a business presence. BSC does not accept any liability whatsoever for losses arising from the use of the Information (or parts thereof) contained in this document.