“Sri Lanka is a key market for us,’’ said Mattias Martinsson, Tundra’s CIO, in Colombo at the CSE-Tundra Sustainability Forum 2018 on March 5. There are several compelling reasons for why this is the case.
One of the first few things we assess before entering any frontier market is the human factor i.e. population demographics, literacy, employment and the health of the economy (GDP, current account deficit, foreign direct investment etc.). Sri Lanka is an established democracy with a healthy balance between state responsibilities (infrastructure, education, healthcare, security) and private enterprise. The economy is predominantly service driven with tourism and trade emerging as key future growth pillars.
Sri Lanka has the potential to become a tourist mecca. Currently, revenue from tourism is 4% of GDP but there is tremendous potential for growth. After the civil war (2009) that virtually decimated Sri Lanka’s tourism industry (0.5 million tourists in 2008), the country has made remarkable strides in recovery, rehabilitation, and reconstruction. In 2017, tourism figures jumped to 2.2 million, which are comparable to Mauritius (1.3 million), a country 1/30th of Sri Lanka’s size. Sri Lanka has a competitive advantage over other tourism destinations in South- and South-East Asia with high-quality resorts (comparable to those found in Mauritius) and beautiful natural vistas ranging from pristine beaches to exciting wildlife. There is something for everyone. Today nearly 1.5 million people (out of 21 million) are directly or indirectly employed by the tourism sector. Given existing infrastructure, future investments and a skilled labour force, we anticipate that tourism can grow mid double digits annually for the next decade, at least. This means Sri Lanka will be in an enviable situation in terms of youth employment and enjoy an expanding middle-income class. At Tundra, we utilise an environmental, social, and governance (ESG) lens to evaluate our potential and on-going investments. Globally, we have noticed that Socially Responsible Investing (SRI) and/or ESG based investing is gradually becoming the norm. Between 2012-2016, 37% of asset growth worldwide came from SRI assets. Furthermore, these assets grew by twice the rate of conventional assets in the same time period. We believe that the growth of ESG assets is accelerating and within 5-10 years it will become the norm. Therefore, understanding and promoting the adoption of ESG analytics is a central theme of our engagement in frontier markets. As a result, we have organised ESG conferences in Pakistan (2015), Vietnam (2017), and now, in Sri Lanka (2018).
Hosted in collaboration with the Colombo Stock Exchange, the conference focused on (i) establishing a case for ESG with guidance for corporates on how to attract foreign institutional investors; and (2) sharing and learning ESG best practices and challenges from Sri Lanka’s top 100 listed companies and representatives of civil society organisations. The discussion was a fascinating one. It ranged from c-suite’s adoption of sustainability as a management tool to improving work-place environments and gender equality among staff, in addition to transparency in supply chains. Companies also described reducing environmental impacts such as reusing wastewater and company-sponsored public initiatives on e-waste management and recycling.
After the conference, we also ran a workshop for leading brokerage firms in Sri Lanka. Participants included heads of research and senior analysts. During the workshop, we focused on how ESG principles can be put into practice, and how analysts from local brokerage houses can help improve the quality of traditional financial research by including ESG related data. We emphasised Tundra’s willingness to share knowledge and information resources to promote the widescale and swift implementation of ESG in the financial services industry.
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