China Fails to Pass ESG Test

Emerging Markets SRI ETFs are underweight China and Russia, but overweight in South Africa, South Korea and Taiwan, relative to the MSCI Emerging Markets Index

Monika Dutt 3 May, 2017 | 3:21PM

Emerging-markets ESG filters help investors to align their asset allocation with their values, but they also create large unintended country bets.

The UBS MSCI Emerging Markets SRI ETF (UC79) and the iShares MSCI Emerging Markets SRI ETF (SUSM) provide exposure to emerging-markets firms that have a limited negative impact on the environment; promote diversity and have good relationships with key stakeholders, including employees; and strong corporate governance systems. They also exclude companies in certain lines of business such as tobacco, alcohol, and gambling.

This means that Emerging Markets SRI ETFs are underweight in their exposure to China and Russia, but overweight in South Africa, South Korea and Taiwan, relative to the MSCI Emerging Markets Index. The largest deviation is in China, which comprises more than a quarter of the MSCI Emerging Markets Index, but only represents 3%-4% of the total weight in each SRI portfolio.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
iShares MSCI EM SRI ETF USD Acc6.54 USD0.87
UBS ETF MSCI Emerging Mkts SRI USD A dis GBP997.13 GBX0.47

About Author

Monika Dutt  is a Passive Strategies Research Analyst for Morningstar Europe

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies