Emerging market internet specialist investor, Kevin Carter (pictured), has USD2 billion invested in the sector through his EMQQ ETF, which, last year, enjoyed returns of 80 per cent.
Carter and his team have now launched EMQQ EVOLVES. “In addition to looking at the ‘ESG-ness’ of our underlying holdings, we wanted to evolve the way our company operates so it serves as a vehicle to catalyse real progress on ESG issues in our industry and around the world,” Carter says.
EMQQ EVOLVES is also designed to act as an operational model to educate the marketplace on where ESG ratings fall short. EMQQ, an ETF invested in emerging market internet companies, falls into a lower ESG rating in several of the popular ESG rating methodologies such as that offered by MSCI or Sustainalytics, Carter says.
“Ratings providers have been pushed to produce ESG ratings and rankings at an industrial scale, leading to the adoption of ‘black box’ approaches that fail to provide an accurate and fair assessment of companies and the ETFs that hold them,” Carter says. “Alibaba and Tencent do not have the same ESG impact that a state-owned oil company has, for example. Yet, they are scored in the same ESG cohort.”
Lee G Stapleton, EMQQ’s Chief Marketing Officer, has been given the title Chief Evolution Officer as well, to oversee and drive accountability for the progress of the EMQQ EVOLVES programme.
Carter says: “EMQQ is about the future and much of the future is young people, particularly the Generation Z in the emerging markets.”
A recent Bank of America research report on Generation Z, quoted by Carter, reports that Gen Z’s economic power is the fastest-growing across all cohorts. “This generation’s income will increase c.5x by 2030 to USD33 trillion as they enter the workplace today, reaching 27 per cent of global income and surpassing Millennials the year after,” the report says. The research shows that nine in 10 Gen Z’s live in emerging markets, and that while developed markets suffer from ‘peak youth’ Gen Z could be EM’s secret weapon.
“APAC income already accounts for over a third of Gen Z’s income and will exceed North American and European combined income by 2035. ‘Peak youth’ milestones are being reached across the developed markets – Europe is the first continent to have more over-65s than under-15s, a club North America will join in 2022. In contrast, India stands out as the Gen Z country, accounting for 20 per cent of the global generation, with improved youth literacy rates, urbanisation, and rapid expansion of technological infrastructure. Mexico, the Philippines and Thailand are just a few of the EM countries that we think have what it takes to capitalize on the Gen Z revolution.”
The likely beneficiaries of the rise of Gen Z, will be eCommerce, payments, luxury, media and ESG. “They have intense focus on the environment in particular,” Carter says, “and that is not going away.”
Stapleton says: “We have been talking about these issues for years but last year was a catalyst year when people got interested in a spike, after the riots started.
“At EMQQ, we work remotely so we are a little removed from the world but we were looking out at the world and felt that we needed to do more and evolve our team. We asked ourselves ‘what can our team do in our own lives to make things better’.”
The existing method of rating ETFs for ESG is a cause for concern for Carter. “It defies common sense that the broad emerging market index, which we should be measured against, has government owned oil and mining companies in it but a better ESG score than we do.
“Increasingly people care about ESG ratings and in Europe, an entire portfolio gets a score and will be pushed to raise the score, which is great if you are trying to improve the ESG footprint of your investments but what troubles me is that it is a ‘check the box’ thing.”
Stapleton agrees, saying: “We want to create a conversation on what does an evolved Wall Street look like. Firstly, we want to shine a light on the broken black box approach to ESG ratings, secondly evolve our operational framework, and thirdly make our corporate statement, and not be part of this greenwashing issue.”
Carter says: “Our index is the best way to get our investors’ exposure to emerging markets without an ESG lens but it seemed to us that if there were a true ESG rating, we would be at the top investing in clean businesses from an environmental standpoint.”
The EMQQ team’s EVOLVE initiatives includes the commitment to install solar capacity on EMQQ’s headquarters, with a goal of having a zero net energy status by 2022.
All EMQQ employees will be provided with a Tesla after one year of employment, and the company will be purchasing carbon credits to offset 100 per cent of corporate air travel.
Carter comments that the electric vehicle of choice in the EMQQ fleet is a Tesla because, he says: “What Tesla has done is nothing short of amazing and Elon Musk is almost certainly the most valuable human we have now in terms of advancing the world.
“There wouldn’t be any other electric vehicles if it weren’t for Tesla. He has been audacious and tenacious.”
In terms of the Social part of the ESG acronym, EMQQ announces that it will remain committed to diversity among its team members and partners, continuing to have no gender, racial or other bias in compensation practices.
In terms of governance, EMQQ will vote on all proxies in accordance with accordance with the ESG Sustainability recommendations of Institutional Shareholder Services (ISS).
In addition to this, the firm has announced an Annual Giving Program to create support for organisations that are committed to advancing issues that reflect the EMQQ team’s beliefs and values.
The 2021 EMQQ EVOLVES giving recipients will be announced in the summer of 2021. EMQQ welcomes suggestions from the public for organisations up until 15 May, 2021. Suggested organisations should be sent to Lee G Stapleton, email@example.com.