Multiple Barriers to EM Exposures for Asset Owners – Mercer

Transparency, scarcity and deal size are among the issues preventing asset owners from increasing allocations to emerging markets, according to a global survey from investment consultants Mercer. While the 200 asset managers surveyed said appetite from institutional clients for sustainable investment opportunities in emerging markets would grow, more than three quarters cited shortcomings in sustainability (78%) or financial (77%) reporting as the biggest impediments to investor allocations in emerging and frontier markets. A quarter (26%) said scarcity of blended finance vehicles were a barrier, with 42% asserting that most investment opportunities in these markets were often too small. Around half (54%) said lack of information on deal counterparties, other investors or deal terms were a break on investment flows, while 70% mentioned regulation. The report also found that asset managers were increasingly incorporating sustainability factors into their investment strategies, with three quarters (72%) factoring adaptation and physical resilience, and half (51%) including ‘just transition’ considerations. “Asset managers are expanding their definition of transition across investment portfolios, broadening from carbon reduction to also address nature loss, physical risks and adaptation as well as support for a circular economy and the principles of equality for sustainable development,” said Helga Birgden, Global Chair on Sustainable Investment, Mercer. At the recent COP28, a number of initiatives were launched to increase sustainability-focused blended finance opportunities in emerging markets, including the Task Force on Credit Enhancement of Sustainability-Linked Sovereign Financing for Nature and Climate.

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