The Future Investment Initiative (FII) Institute, a global non-profit foundation dedicated to addressing global challenges, has introduced its Inclusive ESG Tool and Score at the annual FII flagship conference to enhance the quality of ESG data in emerging markets and empower companies in these regions to attract financial investments.

This pioneering initiative has been developed in collaboration with ESG Book, a leading global provider of sustainability data and technology.

The FII Institute's Inclusive ESG Tool has been meticulously crafted to empower businesses in emerging markets to enhance their sustainability efforts and outcomes while simultaneously assisting investors in identifying current and prospective leaders in ESG performance.

Despite the substantial increase in ESG investments over the past decade, with an estimated $38 trillion in assets managed worldwide under sustainability-focused strategies, emerging markets continue to receive less than 10 per cent of ESG capital flows, despite contributing to 58 per cent of global GDP.

The newly introduced Inclusive ESG Tool has the potential to narrow this ESG investment gap in emerging markets, which currently stands at an astonishing $5.4 trillion.

Through interviews with prominent global investors, the FII Institute has discovered that ESG rating agencies present a significant hurdle to increased investment in emerging markets. A key challenge lies in the fact that many rating agencies employ Key Performance Indicators (KPIs) that are ill-suited to the unique characteristics of emerging markets.

In 2022, the FII Institute addressed this challenge by unveiling the Inclusive ESG Framework and Scoring Methodology, which aimed to answer the fundamental question for investors: "What does exemplary ESG performance entail in emerging markets?"

This year, with the introduction of the Inclusive ESG Tool and Score, the FII Institute recognised the necessity for metrics tailored specifically to the complexities of emerging markets. Its systematic materiality approach places a strong emphasis on industry-specific risks, ensuring a fair evaluation of companies operating in diverse sectors. To promote transparency and accuracy, the score distinguishes between performance and disclosure analytics.

The primary analytical component of this toolkit is the Inclusive ESG Momentum Score, which integrates both current performance and ongoing changes in a company's sustainability efforts. This score acknowledges a company's commitment to driving positive change and provides insights into their future ESG performance. When combined with a company's existing ESG Performance Score and Disclosure Score, it offers a comprehensive and nuanced assessment of their sustainability performance.

Based on this innovative scoring system, the FII Institute and ESG Book have jointly created a Top 250 Inclusive ESG Ranking to recognise the most sustainable companies in emerging markets. This ranking was unveiled alongside the new tool at FII Institute's flagship conference, FII7, which took place from October 24 to October 26, 2023, in Riyadh.

Richard Attias, CEO of the FII Institute, emphasised the significance of directing ESG investments toward emerging markets, where their impact is most urgently needed, all while ensuring the financial returns necessary for the growth of these markets.

He stated, "Our planet faces immense challenges, including global warming, a rapid decline in biodiversity, and an increasingly unbearable cost of living for many. However, we are not without the means to address these issues. Our global financial markets are more interconnected and driven by change than ever before. Investing in ESG (Environmental, Social, and Governance) initiatives plays a pivotal role in the solution."

Dr. Daniel Klier, CEO of ESG Book, expressed enthusiasm about their collaboration with the FII Institute and the introduction of a novel approach to ESG data in emerging markets.

The Inclusive ESG Score, he noted, represents a cutting-edge tool for investors to identify today's sustainability leaders and those of tomorrow, employing a transparent and data-driven methodology tailored to the nuances of emerging markets. This partnership, he anticipates, will enhance investment decision-making and promote increased ESG investment flows into emerging market companies.

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Source: FII