U.N. Sustainable Development Goals Present Opportunities in Emerging Markets November 2019 Notes from the ESG Desk Many investors want their portfolios to provide financial security and help address key global issues. We believe they can achieve positive social and environmental impacts without sacrificing investment returns or reducing environmental, social and governance (ESG)-related risk mitigation. These opportunities lie in emerging markets (EM) investments with a business alignment to the United Nations Sustainable Development Goals (U.N. SDGs). 1 Why the SDGs Are Important in Emerging Markets Relative to developed markets, emerging markets have a greater need for investments in infrastructure, technological innovation and educational improvements. Living standards in some EM nations are among the lowest in the world—socioeconomic, gender and income inequalities can be profound. The region is also more vulnerable to environmental and health-related issues, such as pandemics and rare diseases. All these conditions make investing with an SDG focus in emerging markets especially relevant. With large and growing populations, some of which are experiencing great wealth and equality disparities, we believe EM companies have greater potential to benefit from growth generated by realizing the positive impact the SDGs intend to achieve. Attaining the SDGs could therefore serve as a fundamental driver of growth in corporate revenues and earnings. In turn, these could drive returns from equities and other assets. How the SDGs Can Help Improve Inclusiveness and Equality By investing with the intention of helping advance the SDGs, investors can play a critical role in creating a more inclusive society. According to the Business & Sustainable Development Commission, more than half the value of the global goals’ business opportunities are in developing countries. Emerging markets represent the lion’s share of opportunities across the food and agriculture, cities, energy and materials, and health and well-being systems. A notable portion of these opportunities lie in China, India and other countries in Asia. “Public financing alone won’t be able to supply the $4.5 trillion of capital needed to extend prosperity across the EM region.” FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 1 Guillaume Mascotto Vice President Head of ESG and Investment Stewardship Source: Business & Sustainable Development Commission. Better Business, Better World, January 2017. 71% 60% 54% 52% 29% 40% 46% 48% 0% 20% 40% 60% 80% 100% Food & Agriculture Health & Well-Being Energy & Materials Cities Emerging Markets (%) Developed Markets (%) Figure 1 | More Than Half of SDG Investment Opportunities Are in EM Total Opportunity Share per System
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U.N. Sustainable Development Goals Present Opportunities in Emerging Markets
November 2019 Notes from the ESG Desk
Many investors want their portfolios to provide financial security and help address key global issues. We believe they can achieve positive social and environmental impacts without sacrificing investment returns or reducing environmental, social and governance (ESG)-related risk mitigation. These opportunities lie in emerging markets (EM) investments with a business alignment to the United Nations Sustainable Development Goals (U.N. SDGs).1
Why the SDGs Are Important in Emerging MarketsRelative to developed markets, emerging markets have a greater need for investments in infrastructure, technological innovation and educational improvements. Living standards in some EM nations are among the lowest in the world—socioeconomic, gender and income inequalities can be profound. The region is also more vulnerable to environmental and health-related issues, such as pandemics and rare diseases. All these conditions make investing with an SDG focus in emerging markets especially relevant.
With large and growing populations, some of which are experiencing great wealth and equality disparities, we believe EM companies have greater potential to benefit from growth generated by realizing the positive impact the SDGs intend to achieve. Attaining the SDGs could therefore serve as a fundamental driver of growth in corporate revenues and earnings. In turn, these could drive returns from equities and other assets.
How the SDGs Can Help Improve Inclusiveness and EqualityBy investing with the intention of helping advance the SDGs, investors can play a critical role in creating a more inclusive society. According to the Business & Sustainable Development Commission, more than half the value of the global goals’ business opportunities are in developing countries. Emerging markets represent the lion’s share of opportunities across the food and agriculture, cities, energy and materials, and health and well-being systems. A notable portion of these opportunities lie in China, India and other countries in Asia.
“Public financing alone won’t be able to supply the $4.5 trillion of capital needed to extend prosperity across the EM region.”
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 1
Guillaume Mascotto
Vice President
Head of ESG and Investment Stewardship
Source: Business & Sustainable Development Commission. Better Business, Better World, January 2017.
71%
60%
54%
52%
29%
40%
46%
48%
0% 20% 40% 60% 80% 100%
Food &Agriculture
Health &Well-Being
Energy &Materials
Cities
EmergingMarkets (%)
DevelopedMarkets (%)
Figure 1 | More Than Half of SDG Investment Opportunities Are in EMTotal Opportunity Share per System
Advancing the SDGs in emerging markets also represents the potential to create millions of new jobs across these four systems. SDG investing could create $12 trillion or more in market opportunities and up to 380 million jobs by 2030, with nearly half of these new jobs in EM cities.2
Public Investments Won’t Be EnoughDespite nearly $2.2 trillion in public flows from emerging markets and developing countries, public financing alone won’t be able to supply the $4.5 trillion of capital needed to extend prosperity across the EM region. Private investments pursuing the global goals could help bridge the $2.3 trillion shortfall.3
American Century Investments’ SDG StrategyWe believe our approach to impact investing in emerging markets offers a distinct proposition: to invest in quality growth companies that seek to help solve some of the world’s most pressing problems in countries which may need the most help. At the same time, providing investment solutions geared toward the SDGs is a natural extension of the impact our firm creates through its unique business model.
It’s our view that we can make an impact by investing in companies that fuel change by contributing to the SDGs and demonstrating solid ESG risk management practices, while also generating alpha through our distinct growth philosophy. This philosophy centers on the belief that improving business fundamentals lead to acceleration in earnings and revenues that have the potential to yield stock price performance alongside positive societal and environmental value.
Case StudyConsider an example of a company where we identified opportunities to achieve investment return potential along with measurable SDG impact. By providing access to better education to a wide range of individuals, this company’s operations can help alleviate some of the wealth and quality-of-living inequalities in emerging markets.
China Education Group
China Education Group (CEG) is the leading operator of private higher education and vocational schools in China. By providingthe quality education, vocation training and job placement services that may lead to better employment opportunities, CEG helps reduce poverty and improve working conditions and economic growth potential. The company helps reduce income inequalities and empower women by elevating their social status and broadening access to job prospects.
Impact
§ CEG programs have total enrollment of approximately 145,000 students ages 16-22.
§ CEG operates mainly in the Yangtze River and Pearl River deltas, areas with some of China’s most important transportation hubs and largest planned development projects.
§ Guangdong Province in the Pearl River delta is the nation’s highest populated (116 million) and among the nation’s fastest growing provinces. While population has declined in many provinces, Guangdong has grown by more than 44 million residents since the 1990s.
Company Mission
Provide quality educational services, as defined by independent rankings, and boost employment placement rates among the general population.
FOR INSTITUTIONAL USE ONLY/NOT FOR PUBLIC USE 2
Source: Bloomberg, 2019.
1 Developed by a global team of industry and government leaders and adopted by all 193 member states, the SDGs include 17 goals and 169 attendant targets aimed at solving some of the world’s most pressing problems by 2030. The goals include eradicating poverty, providing environmental resources, and achieving gender and income equality.2 Business & Sustainable Development Commission. Better Business, Better World, January 2017.3 Ibid, January 2017.
A strategy or emphasis on environmental, social and governance factors (ESG) may limit the investment opportunities availableto a portfolio. Therefore, the portfolio may underperform or perform differently than other portfolios that do not have an ESG investment focus. A portfolio’s ESG investment focus may also result in the portfolio investing in securities or industry sectors that perform differently or maintain a different risk profile than the market generally or compared to underlying holdings that are not screened for ESG standards.
Past performance is no guarantee of future results.
The opinions expressed are those of the portfolio team and are no guarantee of the future performance of any American CenturyInvestments portfolio. This information is for an educational purpose only and is not intended to serve as investment advice.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
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