U.N. Sustainable Development Goals Present Opportunities in Emerging Markets

By Guillaume Mascotto - November 2019

Many investors want their portfolios to provide financial security and help address key global issues. We believe they can achieve positive social and environmental impacts without sacrificing investment returns or reducing environmental, social and governance (ESG)-related risk mitigation. These opportunities lie in emerging markets (EM) investments with a business alignment to the United Nations Sustainable Development Goals (U.N. SDGs).¹

Why the SDGs Are Important in Emerging Markets

Relative to developed markets, emerging markets have a greater need for investments in infrastructure, technological innovation and educational improvements. Living standards in some EM nations are among the lowest in the world—socioeconomic, gender and income inequalities can be profound. The region is also more vulnerable to environmental and health-related issues, such as pandemics and rare diseases. All these conditions make investing with an SDG focus in emerging markets especially relevant.

With large and growing populations, some of which are experiencing great wealth and equality disparities, we believe EM companies have greater potential to benefit from growth generated by realizing the positive impact the SDGs intend to achieve. Attaining the SDGs could therefore serve as a fundamental driver of growth in corporate revenues and earnings. In turn, these could drive returns from equities and other assets.

How the SDGs Can Help Improve Inclusiveness and Equality

By investing with the intention of helping advance the SDGs, investors can play a critical role in creating a more inclusive society. According to the Business & Sustainable Development Commission, more than half the value of the global goals’ business opportunities are in developing countries. Emerging markets represent the lion’s share of opportunities across the food and agriculture, cities, energy and materials, and health and well-being systems. A notable portion of these opportunities lie in China, India and other countries in Asia.

Advancing the SDGs in emerging markets also represents the potential to create millions of new jobs across these four systems. SDG investing could create $12 trillion or more in market opportunities and up to 380 million jobs by 2030, with nearly half of these new jobs in EM cities.²

Figure 1 | More Than Half of SDG Investment Opportunities Are in EM

Source: Business & Sustainable Development Commission. Better Business, Better World, January 2017.

Public Investments Won’t Be Enough

Despite nearly $1.2 trillion in public flows from emerging markets and developing countries, public financing alone won’t be able to supply the $4.5 trillion of capital needed to extend prosperity across the EM region. Private investments pursuing the global goals could help bridge the $3.3 trillion shortfall.³

American Century Investments’ SDG Strategy

We believe our approach to impact investing in emerging markets offers a distinct proposition: to invest in quality growth companies that seek to help solve some of the world’s most pressing problems in countries which may need the most help. At the same time, providing investment solutions geared toward the SDGs is a natural extension of the impact our firm creates through its unique business model.

It’s our view that we can make an impact by investing in companies that fuel change by contributing to the SDGs and demonstrating solid ESG risk management practices, while also generating alpha through our distinct growth philosophy. This philosophy centers on the belief that improving business fundamentals lead to acceleration in earnings and revenues that have the potential to yield stock price performance alongside positive societal and environmental value.

Case Study

Consider an example of a company where we identified opportunities to achieve investment return potential along with measurable SDG impact. By providing access to better education to a wide range of individuals, this company’s operations can help alleviate some of the wealth and quality-of-living inequalities in emerging markets.

China Education Group

China Education Group (CEG) is the leading operator of private higher education and vocational schools in China. By providing the quality education, vocation training and job placement services that may lead to better employment opportunities, CEG helps reduce poverty and improve working conditions and economic growth potential. The company helps reduce income inequalities and empower women by elevating their social status and broadening access to job prospects.

Impact

• CEG programs have total enrollment of approximately 145,000 students ages 16-22.
• CEG operates mainly in the Yangtze River and Pearl River deltas, areas with some of China’s most important transportation hubs and largest planned development projects.
• Guangdong Province in the Pearl River delta is the nation’s highest populated (116 million) and among the nation’s fastest growing provinces. While population has declined in many provinces, Guangdong has grown by more than 44 million residents since the 1990s.

Company Mission

Provide quality educational services, as defined by independent rankings, and boost employment placement rates among the general population.

Source: Bloomberg, 2019.