Strategy Note /

ESG: Press freedom black marks for largest EM and FM markets, China and Vietnam

  • Latest Press Freedom Index released this week: a useful governance measure in a top-down ESG country screen

  • Countries with 30% weights in the MSCI equity indices for EM (China) and FM (Vietnam) are among the least "free"

  • For EM portfolios grappling with these inconvenient ESG country truths, our EM Country Index can help

ESG: Press freedom black marks for largest EM and FM markets, China and Vietnam
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
4 May 2022
Published byTellimer Research

In the Reporters Sans Frontieres Press Freedom Index for 2022, released this week, China ranks 175th and Vietnam 174th out of 180 countries globally.

China is the largest country weight in the MSCI EM index and Vietnam is the largest in MSCI FM, each with over a 30% weight.

This presents quite the ESG problem for any passive index trackers and provides another justification for an active approach to EM asset class.

The biggest gainers in ranking terms in this year's index are the following:

  • Large EM: Thailand

  • Small EM and Frontier: Argentina, Ivory Coast, Kazakhstan, Kenya and Singapore

The biggest fallers are the following:

  • Large EM: Hong Kong

  • Small EM and Frontier: Chile, Georgia, Ghana, Greece, Lebanon, Kuwait, Oman, Sri Lanka and Tunisia

Below, we chart the results of this year's index across EM and FM countries and the changes in global ranking compared to last year.

Press Freedom: Largest countries in the Emerging (China) and Frontier (Vietnam) equity indices score very poorly

Press Freedom changes in rankings from 2021 to 2022

ESG on the label versus ESG in the tin

ESG criteria are now touted by almost every equity fund. ESG metrics are, particularly in emerging and frontier markets, at a fairly nascent stage. But most portfolio managers tend to concentrate on company-specific metrics (eg carbon footprint, ethical products, or board composition) and ignore the larger issue of governance at the country level.

Whether governance and freedom, as measured by the likes of the EIU ("Democracy"), Heritage or Fraser ("Economic Freedom"), TRI ("Corruption"), or, in this case, RSF ("Press Freedom") have much to do with country-level growth and stability, and investment returns on the time frame that most institutional portfolios are judged is debatable.

But whichever side of this debate EM and FM portfolio managers sit, they may have to increasingly incorporate top-down (country-level) metrics as well as bottom-up (company-level) ones to faithfully deliver on the ESG promise of their marketing material.

Our recently launched Tellimer EM Country Index includes an ESG factor, of which World Bank Governance Indicators are one component, and has customisable weights which can vary the importance of ESG overall, or governance specifically, in the overall score.

Related reading

A new index for ranking the investability of emerging markets, April 2022

When countries behave badly: The tortuous morality of ESG, March 2022

ESG needs to focus on countries, not just companies, October 2021

Press freedom a black ESG mark for China and Vietnam, April 2021