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Integrating Emerging Market Debt into Article 8 portfolios

Does ESG in EMD harm returns?
October 2021

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Investing in emerging market countries has challenges, particularly because their ESG scores are typically lower than DM countries. However, on the upside, the opportunities for positive changes are much higher and, with more investment, improvements can accelerate even faster.

The financial case for investing in EM countries is also strengthening. An analysis of the JESG EMBIG-D Index (J.P. Morgan’s ESG Emerging Market Bond Index Global
Diversified) versus the JPM EMBIG-D (J.P. Morgan’s Sovereign Emerging Market Bond Index Global Diversified) showed comparable returns and risk-reward factors on an annualised basis.

For investors making an EM country investment, it’s essential to conduct an in-depth analysis. For example: consider whether the premium for ESG risks is sufficient; adjust the allocations for countries and credits with strong and improving ESG factors and, of course, continuously monitor the EM spectrum for changes in ESG dynamics. With these precautions, responsible investors in EM countries really can even integrate EMD into Article 8 portfolios

Key risks

The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.

Changes in interest rates can reduce the value of your investment. Investing in emerging markets is generally considered to involve more risk than developed markets. Screening out sectors or companies may result in less diversification and hence more volatility in investment values.

The information provided in the marketing material does not constitute, and should not be construed as, investment advice or a recommendation to buy, sell or otherwise transact in the Funds. The manager has the right to terminate the arrangements made for marketing.

The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.

Investing in emerging market countries has challenges, particularly because their ESG scores are typically lower than DM countries. However, on the upside, the opportunities for positive changes are much higher and, with more investment, improvements can accelerate even faster.

The financial case for investing in EM countries is also strengthening. An analysis of the JESG EMBIG-D Index (J.P. Morgan’s ESG Emerging Market Bond Index Global
Diversified) versus the JPM EMBIG-D (J.P. Morgan’s Sovereign Emerging Market Bond Index Global Diversified) showed comparable returns and risk-reward factors on an annualised basis.

For investors making an EM country investment, it’s essential to conduct an in-depth analysis. For example: consider whether the premium for ESG risks is sufficient; adjust the allocations for countries and credits with strong and improving ESG factors and, of course, continuously monitor the EM spectrum for changes in ESG dynamics. With these precautions, responsible investors in EM countries really can even integrate EMD into Article 8 portfolios

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