A lack of environmental, social and corporate governance (ESG) disclosure is seen as the key challenge to investing in emerging markets according to seven out of 10 major asset managers and institutional investors representing $130 billion of emerging market investments.

This is one of the findings of a survey from the Emerging Markets Disclosure Project, an international coalition of investors and organisations trying to improve sustainability disclosure by companies in emerging markets.

As increasing numbers of institutional investors are demanding more openness and transparency, poor ESG disclosure by emerging market companies could undermine investor confidence and potentially reduce investment allocations to emerging markets.

Survey respondents commended Brazil and South Africa for making the most progress towards greater ESG disclosure. Both have developed a sustainability index.

Brazil was the top country allocation with Petrobras as the best emerging market holding for investors responding to the survey. The top five country allocations included China, India, Mexico and South Korea, respectively.

The top 10 individual company holdings were Petrobras (Brazil), Samsung Electronics (South Korea), China Mobile (China), Taiwan Semiconductor (Taiwan), Teva (Israel), Vale Do Rio Doce (Brazil), America Movil (Mexico), Gazprom (Russia), Posco (Korea), and Ambev (Brazil).

The biggest challenge of investing in emerging markets was a lack of corporate disclosure on ESG issues. Key drivers for improved ESG disclosure include development of national sustainability indices, ESG listing requirements and influences of global standards and norms.

Improved corporate disclosure on ESG issues could persuade more responsible investors to increase allocations to emerging markets.

At present allocations to emerging markets by Europeans is nearly double that of North Americans in the sample surveyed. The study found Europeans are much more likely to focus on corporate governance criteria and corruption issues in their responsible investment approach while North Americans favour negative screening (for example, screening out tobacco producers, divesting from Sudan).

Three-quarters of respondents are members of at least one organisation devoted to corporate social responsibility or responsible investing issues, usually the UN Principles for Responsible Investment (PRI).

The full survey will be released on June 25 at a conference sponsored by Responsible Investor and the Social Investment Forum.