Skip to content
  • MyNewMarkets.com
  • Claims Journal
  • Insurance Journal TV
  • Academy of Insurance
  • Carrier Management
Insurance Journal - Property Casualty Industry News

Featured Stories

  • 2024 P/C Combined Ratio Best in More Than a Decade
  • Judge Backs 17% State Farm Rate Hike in California
  • Articles
  • Jobs
  • Markets

Current Magazine

current magazine
  • Read Online
  • Subscribe
  • Login
  • Front Page
    • National
    • International
    • Most Popular
    • Magazine
    • Forums
    • Blogs
    • Videos/Podcasts
    • Newsletters
  • News
    • Most Popular
    • National
    • International
    • East
    • Midwest
    • South Central
    • Southeast
    • West
  • Magazines
  • Research
  • Directories
  • Jobs
  • Features
    • Events
    • Forums
    • Market Directories
    • Quotes
    • Polls
    • Rankings & Awards
    • Insurance Giving Back
  • Subscribe

ESG’s Appeal Fades in Emerging Markets as Profit Seeking Eclipses Virtue

By Zijia Song | October 21, 2024
Email This Subscribe to Newsletter
  • Article

Sustainable investments in emerging markets are facing a reckoning as environmental, social and governance strategies crumble under the weight of ongoing capital outflows and the appeal of higher-yielding energy bonds.

ESG investments in developing nations have floundered over the course of the past year, with emerging markets recording a third year of consecutive outflows, largely due to tighter global monetary policies in both developed and emerging economies.

Even as interest rate cuts by the Federal Reserve promise new capital flows into developing economies, backers of sustainable debt confront a harsh truth: Spearheading this year’s returns are bonds issued by borrowers with tarnished ESG reputations, raising questions about the financial viability of sustainable investing strategies.

Companies in the materials, utilities and industrials sectors have provided some of the best returns in emerging markets this year. Bonds from India’s Vedanta Resources Ltd. and Latin America’s largest petrochemical company Braskem SA delivered about 41% and 34% in returns to investors respectively, compared to an average gain of 7.7% for a Bloomberg index of USD-denominated emerging-market corporate bonds. Both companies have come under fire for dubious ESG practces in the past year.

“The return outcomes of bonds with poor ESG metrics in both sovereign and corporate universes within emerging markets have simply been better in recent quarters,” said Philip Fielding, co-head of emerging markets at Mackay Shields. That has dented “demand for the most restrictive ESG products,” he said, referring to strategies that exclude certain bonds.

While hard currency debt sales by developing nations, at $527 billion, increased by nearly 55% through Oct. 11 compared to the prior-year period, green bond sales in these countries — at $45 billion — contracted 5% from the year-ago period, according to data compiled by Bloomberg.

Only four new open-ended debt funds or exchange-traded funds dedicated to ESG causes in emerging markets have launched this year, with the latest coming to market in July, according to data compiled by Bloomberg Intelligence. This is a stark contrast to at least 10 ESG-labeled strategies that launched in 2023, the data show.

The outperformance in energy bonds is partially driven by investors searching for energy security amid escalating conflicts in Russia and Ukraine on the one hand and the Middle East on the other hand, with the latter accounting for a third of global crude supply. A gauge of implied volatility for Brent is hovering near its highest level in a year.

“There’s definitely been an undeniable trend toward energy security,” said Giulia Pellegrini, senior money manager for developing debt at Allianz Global Investors, which holds bonds of several energy companies. That “prompts investors to think that if you invest in energy-intensive names, you’re more likely than not to perform better in an environment that demands energy security.”

Shifting Mood

Investors are finding it hard to navigate diverging regulatory frameworks around sustainable investing, especially in emerging markets. “What’s challenging about EM is that you have so many different regulatory regimes and governments,” said Samuel Bevan, investment director for emerging market debt at Abrdn Plc. “You can’t have a one size fits all approach” in evaluating ESG performances, he said.

Meantime, the European Union’s crackdown on uses of the ESG label and ongoing political backlash in the US are also deterring investors. Case in point: Pacific Investment Management Co., Alliance Bernstein and the asset management units of Goldman Sachs Group Inc. and JPMorgan Chase & Co. have all withdrawn from the world’s largest climate alliance for investors this year.

The retreat by some US-based asset managers is “sending a little bit of less encouraging signals to the market,” said Esther Law, senior portfolio manager at Amundi SA.

Continued Effort

Still, money managers highlight the importance of including emerging market issuers in sustainable finance initiatives. For one, HSBC Holdings Plc’s asset management unit is teaming up with International Finance Corp. to create a joint fund, carrying the EU’s strictest sustainability designation, to support corporate bond issuers in emerging economies. The EU also plans to help reduce the costs of selling green bonds in poorer countries.

Abrdn’s Bevan, who manages a $151 million EM corporate bond fund that invests in companies aligned with the United Nation’s Sustainable Development Goals, said emerging markets provide ample opportunities for ESG goals, including reducing inequality and improving access to clean water and sanitation. “Where the government does support that kind of growth, then it can be a really fast growth process,” he said.

Among emerging issuers that have sold sustainable bonds this year are the Dominican Republic, which marketed $750 million of green bonds in June with a 6.6% coupon, and Engie SA. The Chilean arm of the French energy firm in April issued $500 million of 10-year green bonds with a coupon of 6.375%.

Still, fund managers remain under pressure to balance their ESG-investments in emerging markets and in more developed, less risky counterparts. If a bond sale is limited in size so that investors “are forced to keep it on their books for a long time without the possibility to trade it, there is no liquidity, they are likely to step back,” Pellegrini said.

Photo: Photographer: Brais Lorenzo/Bloomberg

Copyright 2025 Bloomberg.

Topics Trends Profit Loss

Was this article valuable?

Thank you! Please tell us what we can do to improve this article.

Thank you! % of people found this article valuable. Please tell us what you liked about it.

Here are more articles you may enjoy.

No NOAA Large-Disaster Data to Hurt Insurers’ Grasp of Secondary Perils, Says AM Best
FEMA Chief Says Agency Will Raise State Burden for Disasters to 50%
Capital One to Pay $425 Million to Settle Claims Over Savings Accounts
Christian Dior Couture Client Data Breached in Cyberattack

Interested in Emerging Risks?

Get automatic alerts for this topic.

Email This Subscribe to Newsletter
  • Categories: National NewsTopics: environmental social and governance (ESG), ESG investing
  • Have a hot lead? Email us at newsdesk@insurancejournal.com
More News
EU to Propose Removing Business Barriers to Enhance Competitiveness Amid US Tariffs
Former Progressive CEO Renwick, 69, Dies
Hack of Contractor Was at Root of Massive Federal Data Breach
Acrisure Secures $2.1 Billion Funding Round for M&A, Tech
More News Features

Read This Next

  • ESG's Appeal Fades in Emerging Markets as Profit Seeking Eclipses Virtue
  • 3 Emerging Risks to Watch: 6G Wireless Technology, Autonomous Trucks, Kratom
  • State Farm VP Apologizes to Homeowner While Allstate Gets Grilled at Senate Hearing
  • Cybercrime Up Again
  • Root Builds on First Profitable Year With Reversal of Q1 Loss to Start 2025

Insurance Jobs

  • Assistant Client Service Specialist, Surety Support Team - Hartford, CT
  • Health & Benefits Producer - Charlotte, NC
  • Associated Broker – Casualty - Minneapolis, MN
  • Senior Software Engineer (AI) - Saint Paul, MN
  • Software Engineer II (React, React Native, Nodejs) - Hartford, CT
MyNewMarkets
  • 5 Ways to Prepare for Healthcare Liability Changes in 2025
  • What's Next For Workers' Comp?
  • Soft D&O Market May Come to an End as Risk Complexities Rise
  • Exclusions: Active Assailant Coverage - Oh My!
  • 10 Things to Know About Insuring Boats & Marinas
Claims Journal
  • Marks & Spencer Says Cyberattack to Cost $403 Million
  • APCIA Says Record Shows 'Minimal Complaints' on Hurricane Milton, Helene Claims
  • Mitchell: Claims Frequency of Battery Electric Vehicles up as Sales Face Tariff Threat
  • Fire on Chevron Oil Platform Offshore Angola Injures 17
  • AF Group Claims Exec Embracing AI, But He Won't Measure Success by Replacing People
Academy of Insurance education
  • May 22 Commercial Property: Five Bombs and How to Defuse Them
  • June 5 E&O and Hard Markets: How Trying to Keep a Client Might Cause Trouble
  • June 12 Rating AI Tools: Balancing Functionality and Security
  • June 19 Can You Hear Me? Yes, I Am Listening!

Insurance News

  • News by Region
  • News by Topic
  • Yesterday

Site Search

Features

  • Insurance Markets Directory
  • Forums
  • A.M. Best Company Ratings
  • Industry Events
  • Agencies For Sale
  • Newswire
  • Insurance Jobs
  • Rankings & Awards

Connect with us

  • Email Newsletters
  • Magazine Subscriptions
  • For Your Website
  • RSS Feeds
  • Twitter
  • Facebook
  • LinkedIn
  • Do Not Sell My Info

Insurance Journal

  • Submit News
  • Advertise
  • Subscribe
  • Reprints
  • Link to Us
  • Contact Us

Wells Media Group Network

  • Insurance Journal
  • MyNewMarkets.com
  • Claims Journal
  • Insurance Journal TV
  • Academy of Insurance
  • Carrier Management
© 2025 by Wells Media Group, Inc. Privacy Policy | Terms & Conditions | Site Map