First US mandate for ESG-focused emerging market equities

In a first for the US market, several institutional investors are searching for an investment manager capable of running emerging market equities in alignment with rigorous environmental, social and governance (ESG) standards.

Finding no commingled ESG-focused emerging market equities funds available to US institutions, the Fetzer Institute, Meyer Memorial Trust and a large West Coast community foundation are collaborating with investment consultancy Cambridge Associates to find and back a skilled manager willing to build this product.

Kevin Stephenson, director of the mission-related investing group with Cambridge Associates and leader of the search, said the absence of such a product in the US was primarily due to a “chicken-and-egg situation” in which managers perceived scarce interest in ESG-themed emerging market equities among institutions.

“Managers with a platform to do this kind of fund perceive a lack of interest on the part of US-based institutional investors, but the reality is that institutions haven’t spoken up because they are yet to see a viable vehicle,” Stephenson said.

The investors aim to build a vehicle a fund large enough to assuage the usual institutional concerns about the viability of small funds, but will also accept investments as small as $1 million, making it available to many investors.

So far, four well-established global equity managers have responded to the search, in which the investors aim to select a large funds management organisation with a strong emerging markets team and a proven ESG methodology.

The product will use tools including positive and negative stock screens, and company engagement.

Christina Adams, vice president of finance and administration with the Fetzer Institute, said the search aimed to fulfill two of the non-profit foundation’s investment aims.

“There is a real desire to make emerging markets investments that are not only smart but also have the potential to make a positive difference for people,” Adams said.

Cambridge Associates will not garner additional fees for conducting the search, and welcomes the involvement of other institutions committed to mission-related investments, even if they are not clients.