Investors who wish to invest in emerging markets on the basis of their sustainability should be investing in Hong Kong, which has topped a new league table which assesses countries on the basis of environmental, social and governance factors.

Having assessed 85 emerging markets states, ING Investment Management placed Hong Kong at the top, with Chile, Singapore, Barbados and the Czech Republic comprising the rest of the top five. Pakistan was found to be the worst performing market on an ESG basis, with Iraq, Nigeria, Angola and Cote d’Ivoire also in the bottom five. Interestingly, not one of the BRIC countries made it into the top 20: Brazil came in at number 25, while China, India and Russia were 39^th, 53^rd and 57^th respectively.

ING included the troubled EU states of Spain, Portugal, Italy and Ireland in its assessment, with these countries coming in 7^th, 8^th, 19^th and 24^th position. Surprisingly, the likes of Uruguay, Lithuania and Latvia all scored higher than Italy and Ireland.   

ESG considerations are now much higher on the agenda of investors, in recognition of the fact that socially responsible investing does not necessary entail sub-par performance; indeed, various studies suggest that companies (or in this case countries) which adhere to good ESG practices are actually less risky investments over the long term.

“ESG factors determine how a country deals with the challenges of the future, and this has significant implications for its debt repayment capacity and willingness to pay,” said Rob Drijkoningen, head of emerging markets debt at ING Investment Management.

“Countries that are reasonably successful in producing a self-sustainable quality way of living for their population over generations will be more creditworthy, ensuring the capacity to generate capital to repay debt. Countries with a poor quality of governance, on the other hand, are more prone to crises, which can easily turn into major systemic dislocations that threaten the ability and willingness to service debt.”