Environmental, social, and governance factors are proven to be important, long-term drivers of productivity. As such, we have identified indicators that capture changes in these factors – energy efficiency, for example. In this way, our ESG-tilt works alongside our existing indicators (and investment approach) to signal those Emerging Market countries with the greatest potential for productivity gains. The tilt delivers an ESG-friendly allocation to EM currencies, which is in line with the UNDP’s Sustainable Development Goals, without detracting from returns. As such, it improves the ESG credentials of our Currency Multi-Strategy product.
Better institutions lead to higher growth, paving the way for a more sustainable path for a country. This, in particular, is directly linked to the expected returns from currency as an asset class. Faster productivity growth translates into real currency appreciation via the Balassa-Samuelson effect. To capture this, we have developed a set of ESG factors which can function as advanced indicators of productivity growth in the national economy. It is this productivity growth which contributes to sustainable returns in currency. As a result, in line with the UNDP’s Sustainable Development Goals, our ESG-tilt invests in the currencies of countries with more sustainable growth potential hence improving the systemic effects of the investments.