The share of emerging markets in the global economy has grown steadily over the last decade. These markets now account for a larger share of global GDP than developed countries. The economic fabric of these countries has enabled the development of companies of certain sizes which, like those in developed countries, are financed through the capital markets, whether by issuing equity or bond debt.
The share of emerging markets in the global economy has grown steadily over the last decade.
The boom in emerging markets is intense. In fact, the amount of debt issued by emerging companies even exceeds the amount issued by governments classified in the emerging category. This growth in issuance volume reflects growing investor interest in emerging market corporate debt. As well as offering a higher yield than debt issued by companies in developed markets, emerging market debt also has a volatility comparable to that of developed countries, making this asset class a bond category in its own right when it comes to optimising the risk/return trade-off within an asset allocation.
However, the asset class is very heterogeneous, so appropriate selection is required. In view of the climate challenges and potential governance or social problems facing any player investing in this universe, a sustainable approach is a wise choice not only to filter the universe, but also to invest in the most dynamic and ambitious companies to prevent the emergence of such problems or to seize opportunities linked to this theme.
In concrete terms, our selection process based on ESG criteria follows an iterative process that begins with a number of exclusion filters (negative screening) within our investment universe, in line with the United Nations Global Compact and Sustainalytics assessments. In this way, we avoid companies involved in serious controversies or that do not comply with the Compact's principles.
We also use our expertise in responsible investment to screen out companies in specific areas, such as gambling and oil and gas extraction. The selection is then based on the best ESG performance and excludes the bottom quartile of worst performers.
In concrete terms, our selection process based on ESG criteria follows an iterative process that begins with a number of exclusion filters (negative screening) within our investment universe, in line with the United Nations Global Compact and Sustainalytics assessments.
In addition, we ensure that we have significant exposure (at least 20%) to companies that contribute to the UN's Sustainable Development Goals. We then examine all our strategies, focusing in particular on greenhouse gas emissions and overall ESG score. The aim is to keep these two criteria below the average for the emerging market. At least 50% of our strategies must be considered sustainable, according to a series of progressive criteria ranging from green bonds to alignment with the Sustainable Development Goals.
This highly selective filtering process gives us an investment universe that significantly reduces the risks mentioned above. Of course, fundamental analysis of the issuer remains key as an active manager. Here, the selection is based on very precise criteria, both in terms of the sustainability of the business model and financial strength. The cash flow generated, the debt maturity schedule and the company's liquidity all receive particular attention in our selection process. For emerging issuers, we also analyse the issuer's geographical exposure and bear in mind the importance that the local macroeconomic environment may have on the issuer's revenues. This rigorous methodology, combined with in-depth fundamental analysis of each issuer, enables us to minimise risk while building a robust portfolio that is resilient to the challenges ahead.