A lack of disclosure on environmental, social and corporate governance (ESG) issues is a key challenge when asset managers and institutional investors consider investing in emerging markets, says a survey by the Ethical Investment Research Service (EIRIS) and the International Working Group of the Social Investment Forum.

The survey, part of the Emerging Markets Disclosure (EMD) project, shows that 70 per cent of major asset managers and institutional investors cite this as a key issue, and poor ESG disclosure threatens to undermine investor confidence in emerging markets.

Brazil and South Africa, however, were commended by respondents to the survey for making good progress towards greater openness and transparency when it comes to ESG, with both countries developing a sustainability index to which their listed companies can aspire through improved disclosure.

After Brazil, China, India, Mexico and South Korea made up the top five country allocations from investors answering the survey.

Three-quarters of respondents are members of at least one organisation that is committed to corporate social responsibility or responsible investment issues, such as the UN Principles for Responsible Investment (UN PRI).

Mike Lombardo, senior sustainability analyst of Calvert Investments, and the EMD Project's South Africa country team lead, commented: "While the results are encouraging, the survey demonstrates the continued need for greater ESG transparency in emerging markets. Analysts need ESG disclosure in order to identify the most sustainable companies in which to invest."

Sonia Wildash, author of the report and senior researcher at EIRIS, added: "Emerging markets hold significant opportunities for responsible investors. But if they are to better understand emerging market company ESG risks and opportunities, then corporate communication to investors clearly needs to improve. An engagement approach among emerging market investors should seek to improve the corporate responsibility and disclosure practices of companies."

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