By Andrew Ness, portfolio manager of the Templeton Emerging Markets Sustainability Fund
Sustainable investing is a long-term, multi-stakeholder approach to value creation. It has a clear focus on positive, real-world, social and environmental outcomes. These are delivered and quantified in an effective, accurate and repeatable way.
Templeton Emerging Markets sustainable investment strategy gives investors pure emerging market equity exposure, with a focus on sustainability. The strategy invests in a diversified portfolio of companies located or having their principal business activities in developing or emerging nations. We focus on companies which demonstrate good or improving sustainability criteria as defined by our propriety ESG rating methodology.
One of the biggest investment opportunities we have identified for sustainable investments in emerging markets is contributing to closing the funding gap. The Organisation for Economic Cooperation and Development (OECD) estimates that the gap between the annual financing requirement for emerging markets to meet the UN Sustainable Investment Goals by 2030, and current investment trends, is US$3.9 trillion[1].
Companies we invest in that represent attractive sustainable investment opportunities, and contribute to closing the funding gap include:
Taiwan Semiconductor Manufacturing Company (TSMC) ADR (TSM US)
TSMC is the world’s largest semiconductor foundry. Via sustainable innovation in product development, the company benefits from higher efficiency, lower water and power consumption, preserving scarce resources.
The company supplies semiconductor chips for use in Smartphone, artificial intelligence (AI) servers, and Autos. Major customers include Apple, Nvidia, and Qualcomm. The company has foundry’s in Taiwan, China and the US, with plans for additional foundry’s in Europe and the US. The strategy is overweight the stock, reflecting our optimism on the long-term growth in global demand for semiconductors used in AI, consumer products and autos.
Hon Hai ADR (HNHPF US)
Hon Hai is the world’s largest contract electronics manufacturing company. From a sustainability perspective, the company produces lower power consumption products aligned to lower emission technologies and increased efficiency. Its business model focuses on original equipment manufacturing for Consumer Electronics Products, Cloud and Networking Products and Components.
The company’s customers include Apple, Microsoft, and Cisco. Hon Hai has production facilities in China, India, and Brazil, amongst others. The group employs over 1 million people and has plans to establish itself as a contract manufacturer in the electric vehicle industry. The strategy has a significant overweight in the company, reflecting our view that Hon Hai is well positioned to benefit from the trend of global supply chain diversification.
ICICI Bank ADR (IBN US)
ICICI Bank is one of the largest private sector banks in India, with a network of over 6,000 branches. The bank is involved in providing individuals access to capital for fulfilling basic needs, and small businesses which drives employment creation, social and economic development. It has a number of subsidiaries, including ICICI Prudential Life insurance, a separately listed company of which it owns 51%[2].
In recent years India’s economic growth, which has been the highest amongst emerging market peers, is driving increased demand for financial services, which ICICI is well placed to provide. The strategy has a significant overweight in the stock. This reflects our optimism on the growth outlook, and the ability of the bank to benefit from the increased penetration of financial services ranging from bank accounts to cash management services and life insurance.
[1] Source: OECD, Global Outlook on Financing for Sustainable Development 2023: No Sustainability Without Equity, November, 10 2022.
[2] Source: Bloomberg, May 31, 2024.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The fund manager’s views are their own and do not constitute financial advice.
