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Lack of board diversity poses ESG risk
Board diversity could help mitigate environmental, social and corporate governance (ESG) risks of globalised companies that derive up to 70 per cent of revenues from emerging markets, AXA Investment Managers said.
AXA Investment Managers global head of responsible investing Matt Christensen said there was room for company boards to improve their readiness to address the risks the globalised economy posed.
Board members needed to have knowledge of the markets they operated in and increasingly, to understand their stakeholders, he said.
Global supply and distribution networks were spread globally and often revenues came from emerging markets, which made it important to have an emerging market presence on the board, according to Christensen.
He said the top 50 companies in Europe derived 50 per cent or more of their revenue from emerging economies, while board members from those emerging economies only accounted for 10-20 per cent.
Director for AXA Investment Managers in Australia and New Zealand, Craig Hurt said local investment managers with global equity allocations were attracting 70 per cent of revenue from emerging markets.
"You may be buying it in London, you may be buying it in the US, but you're buying a company that's predominantly making money out of emerging markets, and hence the importance of understanding that company's board and governance - and understanding emerging market dynamics becomes very relevant again to the local market," he said.
Hurt highlighted the significant divergence of 10-year bond indices volatilities for the Eurozone to emphasise that - despite public opinion that ESG risks only affected equities - ESG was an important consideration across all asset classes.
ESG risk mitigation was gaining traction due to super fund's need to minimise the variability of retirement outcomes to ensure members did not lose trust in the system, Hurt said.
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