Why is it all about that G, not the S (or even the E) in investing? OR What would Meghan Trainor Have to Say About International ESG Investing?

This isn’t a trick question.

Rather, it’s the surprising conundrum many investment managers are having when it comes to global investing for their clients. There simply isn’t clear direction to choosing the “right” stocks. Does relying upon traditional company analysis work for international companies and their stock? Political, geographic and economic unrest serve to complicate the matter even more.

  • International equities, particularly emerging markets, have been top performing asset classes over the last decade, but traditional investments may have drawbacks.
  • Country selection is crucial when investing internationally, because the economic infrastructure, accounting, regulatory, and legal systems are all different. In other words, you can’t simply use traditional analysis to evaluate stocks across borders.
  • Countries MatterTM when building international equity portfolios, especially when building Responsible Investing portfolios.
  • Magni has more than a decade of research that evaluates these critical areas to construct their portfolios.

It’s for these reasons that our latest whitepaper, “Country Selection: An Important Addition to Responsible Investing” has been released.

In Part 1, we highlight the trend of Responsible Investing and its continued growth throughout the world. Just as more corporations are embracing the need to address sustainability issues as a best business practice that can lead to increased profitability, institutional investors are incorporating Environment, Social, and Governance (ESG) and related screening approaches into the construction of their portfolios.

The significant and growing share of funds using Responsible Investing reflects improvements which have been made to the screening approaches and in the information available to make the underlying decisions. The improvements to Responsible Investing are also evident in the changing discussion of performance. A shift from “negative screening” that avoids specific non-ESG companies to “positive screening” that overweights ESG-aligned opportunities has begun to demonstrate strong performance.

When considering the various approaches to screening companies, an emphasis on corporate governance appears to be very important in achieving the highest performing Responsible Investing portfolios.

In Part 2, we observe that despite the improvements, performing ESG evaluations can still be difficult given the unproven value of commercial rankings of companies against ESG standards. Complicating the process of improving such rankings has been the nascent nature of each country’s reporting requirements for corporations regarding these topics. Beyond reporting requirements, countries impact the integrity of the financial statements, the ownership rights of and protections for shareholders, and the sustainability of the business environment.

Collectively, countries have a very important role in sustainability and the next major improvement to Responsible Investing can come from performing assessments on countries. Sustainable Wealth Creation principles can be used to assess and rank countries. In essence, Countries Matter™ when building a Responsible Investing portfolio.

Finally in Part 3, we discuss how Sustainable Wealth Creation principles can be used to build investment portfolios. Actual portfolios built using these principles have demonstratively delivered superior risk-adjusted performance for more than a decade.

Looking for more perspective on international investing? Download our whitepaper:  “Country Selection: An Important Addition to Responsible Investing” Follow Magni Global Asset Management on LinkedIn and Twitter @MagniGlobal.