BCi strategy utilizes deep expertise to capture long-term growth possibilities through internal, active management
As evidence builds that investing through environmental, social, and governance (ESG) factors increases returns, protects the environment, and makes a positive impact on society, institutional investors plan to increase its usage. The vast majority of executives (92%) plan to increase their ESG data spend by at least 10%, with 18% planning an increase of 50% or more, says Bloomberg’s ‘ESG Data Acquisition & Management Survey 2023.’
The success of investing through ESG is also evident in emerging markets. Over the last 10 years, the MSCI Emerging Markets ESG Leaders Index outshone the broader MSCI Emerging Markets Index with 14.5% annualized returns versus 10.7%. Not surprisingly, institutional investors have taken notice and are utilizing this strategy.
British Columbia Investment Management Corporation (BCI) is one of the largest institutional investors in Canada with $233 billion in gross assets under management. It manages a portfolio of diversified public and private market investments on behalf of its 32 British Columbia public sector clients.
Using internal active management
In April 2022, the firm launched an internally managed strategy in its Active Emerging Markets Equity Fund. The strategy was created so BCi could use its deep expertise to capture long-term growth opportunities through internal, active management.
“During the development of the strategy, we focused on tailoring our ESG analysis to the unique considerations for emerging markets,” says Jean-Christophe Lermusiaux, managing director, global emerging markets, BCi.
Lermusiaux says that while emerging markets are at the forefront of systemic issues like climate change, they have generally not yet reached developed markets' level of sophistication in terms of regulation, disclosure, corporate governance, and other ESG considerations. ESG data is also more scarce and less reliable in emerging markets. As a result, risks of ESG-related financial impacts can be higher than in developed markets, both at the company and country levels. This is why it is important to integrate ESG throughout the investment process.
“We incorporated ESG principles while drafting the strategy's initial business plan, helping establish our embedded approach to ESG from day one,” he says. “Close collaboration between BCI's dedicated ESG and investment teams ensured we fully considered ESG at the company, sector, and country levels. When we launched the strategy, we built tailored analytical tools to assess ESG data and analyze the investment universe for ESG considerations.
“With our ESG colleagues, we continually review the emerging markets landscape through an ESG lens and anticipate shifts that could impact the portfolio. A member of the ESG team participates in our daily meetings to exchange insights and discuss our engagement strategies with companies. Each quarter, we conduct a global ESG review of the portfolio and openly discuss ESG risks and opportunities in the investment universe. For each investment, we analyze expected returns and ESG considerations.”