Marrying sustainability and emerging markets expertise in quantitative strategies

Marrying sustainability and emerging markets expertise in quantitative strategies

03-08-2022 | Insight

The most sustainable emerging market companies are on par with those in developed markets. Our emerging market quant equity approach is designed to benefit from these businesses.

  • Wilma de Groot, PhD
    de Groot, PhD
    Head of Core Quant Equities and Head of the Quant Equity Portfolio Management team
  • Vania  Sulman
    Portfolio Manager

Speed read

  • Emerging markets have tremendous growth potential in sustainability 
  • Sustainable emerging market companies are as ‘green’ as those in developed markets 
  • Our sustainable emerging market equity strategy targets this opportunity

Sustainable investing in emerging markets is considered challenging because of the belief that these markets generally have weaker environmental, social and governance characteristics than developed ones. By applying a range of metrics, we show that the most sustainable companies in emerging markets are on par with those in developed markets.

With wider data coverage and better data quality, emerging markets present a significant opportunity for sustainable investors. Using Robeco’s quant approach, we are able to benefit from this opportunity by identifying the right companies and constructing tailor-made solutions that meet investors’ financial and sustainability objectives.1

A sustainable growth opportunity

Emerging markets offer significant growth potential in the realm of sustainability. This new reality is set by the example of countries such as China and India, who have started playing a leading role in the clean energy transition.

For example, China now supplies 75% of the world’s solar panels, and India was the first country to set extensive standards for light-emitting diodes (LEDs), which is expected to save around 277 terawatt-hours of electricity between 2015 and 2030 – the equivalent of about 10% of Europe’s total carbon emissions in 2020. Significantly, Asia-Pacific is the region with the largest and highest growth of investment in low-carbon energy sources.

Despite this tremendous opportunity, sustainable investing in emerging markets poses unique challenges, with concerns about the lack of oversight and regulatory standardization across jurisdictions, and the view that emerging markets are lagging in terms of sustainability.

As active investors, we see the varied nature of the emerging market sustainability landscape as an excellent opportunity to create highly sustainable emerging market portfolios. The key question is: how do we find such well-positioned and sustainable companies in emerging markets?

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates

The quest to find the most sustainable companies in emerging markets

This challenging task calls for a data-driven selection approach, which has the advantage of broad coverage. The ultimate goal is to build a portfolio that meets specific constraints and demands with respect to sustainability characteristics. Our approach is to cover multiple sustainability angles and measures, including ESG risks, environmental footprint, water consumption, waste management, and the company’s contribution to the SDGs.

Our sustainability assessment is done at a country and at a stock level. Figure 1 shows the average sustainability scores (ESG risk score, carbon footprint and SDG score) of benchmark constituents in each individual country and the comparison with the best and worst-scoring country in developed markets.

We observe that the worst-performing country in developed markets is in general still doing better than the worst one in emerging markets, while – aside from SDG scores – the best countries in developed markets and emerging markets on average perform equally well. For example, the country with the highest ESG risk in developed markets is Israel, with a score of 25, while Peru in emerging markets has a score of 35. At the other end of the scale, the country with the lowest ESG risk in emerging markets is Colombia with a score of 19, while in developed markets it is Italy with a score of 18.

Figure 1 | Country dispersion of sustainability scores in emerging markets versus developed markets

Source: Sustainalytics, Trucost, Robeco. The universe consists of constituents of the MSCI World and MSCI Emerging Markets indices. Data as of March 2022.

Additionally, we observe that there are not many countries that perform exceptionally well or poorly on all three measures. For instance, Peru receives a poor score on ESG but has a low carbon footprint and a top-quartile SDG score. Similarly, Egypt has a low carbon footprint but does not perform very well in terms of SDG.

This finding highlights the fact that there are low correlations among these three measures (ranging between -30% and +30%), as shown in Figure 2. These results emphasize the importance of a multi-dimensional approach to sustainability, which takes different aspects into account when constructing portfolios.

Figure 2 | Correlation across different sustainability measures

Source: Sustainalytics, Trucost, Robeco. Displayed are the rank correlations of each individual stock’s score. Data as of March 2022.

Sustainability of emerging market stocks

In addition to analyzing the dispersion at the country level, we look further into the dispersion at the stock level. This is important for the selection of companies in an equity portfolio. We divide the companies in each universe into 20 buckets based on their sustainability scores and present the average scores of the top, middle and bottom bucket in Figure 3. For SDG scores we present the percentage of companies for the seven different SDG values (from +3 to -3).

In line with our findings at the country level, we observe differences between emerging and developed markets at the stock level, and particularly for the worst-scoring companies.

Figure 3 | Average sustainability scores per stock level bucket in emerging markets versus developed markets

Source: Sustainalytics, Trucost, Robeco. Data as of March 2022.

Similar to our country-level conclusion, the worst-scoring companies in emerging markets are less sustainable than those in developed markets. However, we observe that the companies in the top-scoring levels in emerging markets are highly sustainable and rate similar to the top companies in developed markets or are even more sustainable when measured by the top SDG scores.

Ample data quality and coverage in emerging markets

In order to construct a portfolio with robust sustainability integration, that is not subject to selection bias and that is customizable, it is critical to have ample, high-quality data on various sustainability aspects.

Thanks to increasing demand from investors for transparency, stricter regulation for disclosures, our collaboration with trusted data suppliers and a growing team of sustainable investing analysts at Robeco, we have in recent years achieved a degree of coverage in emerging markets that is as wide as we have in developed markets.


Investors increasingly are focusing on sustainable investing in emerging markets. With wider data coverage and better data quality, emerging markets present a significant opportunity for sustainable investors. These companies are not just sustainable according to emerging market standards but prove to be highly similar to their developed market counterparts. The big challenge is in identifying such sustainable companies in emerging markets.

Our analysis confirms that we have the ability to find these companies by using a multi-dimensional sustainability approach. Robeco’s quant approach is designed to identify and benefit from these sustainable companies and to construct tailor-made solutions to meet investors’ unique financial and sustainability objectives.

1 This article is based on a more detailed paper by the same authors, “Marrying sustainability and emerging markets expertise in quantitative strategies”, June 2022.

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.



1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree