Although big populations tend to suggest big pollution, we believe there is an encouraging trend in the approach India, China and other emerging economies are making towards sustainability and good corporate stewardship.
China accounts for the largest middle class and consumer market, estimated to be $7tn in 2020. An additional 60m people are added to the middle class annually and this is expected to grow to a total of 1.2bn people by 2027. India accounts for one-sixth of the world’s population and is one of the fastest growing major economies with an expected 90 million young people entering the labour market every year. India’s middle class is expected to be the largest by population and the third largest consumer behind China and United States, suggesting an estimated $6trn market growth opportunity by 2030. With both countries dominating the global consumer landscape, their approach to sustainability is increasingly important to the overall global agenda.
Both China and India adopted the Sustainable Development Goals in 2015, aligning themselves to a global agenda focusing on 17 goals to reach by 2030. China has incorporated sustainability targets in their Five-Year Plans since 2001 and since then the number of sustainability targets, focusing on environment, energy and resources, has increased from 11 to 56. China has also pledged carbon neutrality before 2060 at the UN National Assembly in September 2020. India has rolled out universal health coverage programme, providing coverage to almost 500m individuals. India has also set a target to install 450GW of renewable energy by 2030.
To put these pledges into context, China and India are amongst top 5 countries for installing renewable energy in 2020; China accounts for over 50% of global electric vehicle sales and cities like Shenzhen have adopted 100% electrified land-based public transportation. India aims to achieve complete electrification of its railway network by 2023.
100 Yutong full electric buses to be to delivered to Chile (Source: Yutong)
Apart from the government pledges on climate change, environmental, social and governance (“ESG”) is growing with positive momentum in the Emerging Markets. Just like the Swedish climate activist Greta Thunberg, emerging countries’ environmental champions are also spreading their influence: Chinese activist Hongyi Ou, known by the media as Greta of China, started her flight against climate change in Guilin, China in 2019; Indian activist Ridhima Pandey, who at nine years old filed suit against the Indian government for their lack of action against climate change. These two young activists have more than 10k followers on social media collectively and are expanding their influence.
Other than environmental issues, social challenges like gender equality, diversity and urban overcrowding are also being addressed through various movements, such as the recent win of a #Me Too case in China. Together, these movements are influencing consumers’ everyday decisions. For instance, electric vehicles, sustainable fashion and plant-base diet are increasing in China and more consumers are actively choosing lifestyles, brands and products which are identifiably sustainable. With higher demand for sustainability, businesses, and initiatives like Ant Forest (Alipay’s carbon-account scheme which tracks green spending and grants funds towards planting trees), Xianyu (a second-hand goods selling platform) and Dicos (China’s fast-food chain which has introduced a new plant-based menu) are emerging.
For the Aubrey Global Emerging Markets team, we monitor, assess, and engage with companies on their ESG performance annually. We identify two main categories of firms when assessing ESG: the ones which directly create a positive impact through their products and solutions; and the ones which may not have products that contribute towards ESG directly but are carrying initiatives that support ESG indirectly such as supporting community development. For example, Feihe’s charity foundation in Heilongjiang Province and Beijing Taijtang Life Sciences Research launched a series of seminars on postpartum depression and maternal care. Feihe also donated RMB20m towards mother and infant care in China.
One company that falls squarely within the first category mentioned above is NIU, an electric scooter company from China which helps ease urban transportation and pollution issues through their lithium-ion powered smart scooters. Their cloud connected electronic control units not only send live data to improve the user experience, but also track data which demonstrate the importance of electric vehicles for resolving urban overcrowding and pollution issues. According to NIU, to date, more than 8 million kilometres of distance have been driven; 2 million kilograms of CO2 emissions have been reduced (which equivalent to 104k trees being planted). Internally, the company has waste management and battery recycling programmes in place; social and governance related initiatives and policies have also contributed towards NIU’s overall ESG assessment.
Titan, a leading jewellery company from India has several ESG initiatives which we consider positive: environmental targets such as pursuing renewable energy are established. Around 54% of energy consumption is powered by wind; Titan is investing in solar systems for their Hosur factory and retail stores. The company also focuses on sustainable supply chain practices by supporting local suppliers to improve their operations through environmental and work safety training as well as encouraging them to gain external certifications such as ISO 9001 and ISO 14001. Furthermore, Titan supports social initiatives such as the Girl Child Education Initiative (which has reached 28,000 children), Mobile Rural Vision Screening Program (a bus adapted for the Eye Care Program to reach rural areas of Karnataka).
Tata Starbucks Empowering Girls and Young Women initiative (Source: Educate Girls)
Emerging markets have been attracting international investor attention and companies are increasingly receptive to the discussion surrounding their ESG initiatives. With more ESG guidelines and standards being established and refined, emerging countries and their companies have and will continue to improve their ESG performances.
At Aubrey, we are committed to an investment process that focuses on Emerging Market consumer facing companies that take ESG as seriously as we do. We are signatories of the United Nations-supported Principles for Responsible Investment (PRI).
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