Each week Emerging Markets ESG publishes an interview entitled, “Five Questions about SRI.” The interview features a practitioner’s insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are fourfold:
- To reflect on what SRI in emerging markets means to practitioners;
- To collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
The mission of Social Rating Agency sp. z o. o. (Agencja Ratingu Społecznego), established in March 2010, is to allow the construction of investment portfolios based on capital market efficiency, using ethical ratings; to enable the asset managers of socially responsible investments to enter the Polish capital market, using the criteria of social responsibility; and to attract socially responsible investors into the Polish capital market. It is a partner of ECPI, a global provider of ESG ratings, and screens issuers of securities in Poland using the ECPI methodology. Social Rating Agency allows access to the ESG ratings of Polish issuers as well as access to ratings of foreign issuers by ECPI. Cezary Mech is President of the Management Board of Social Rating Agency. Dr. Mech has a wide-ranging career in financial sector supervision. From 2006 to 2008 he was Vice–President of the Office of the Parliament. He was also an Advisor to the President of the Central Statistics Office and to the President of National Bank of Poland. In 2005/2006 he was Undersecretary of State at the Ministry of Finance; Vice President of the Bank Supervisory Committee and Insurance and Pension Funds Supervisory Commission; a member of the Polish Securities and Exchange Commission; and a member of the EBC (European Banking Committee), ESC (European Securities Committee), EIOPC (European Insurance and Occupational Pension Funds Committee), EFCC (European Financial Conglomerate Committee) and FSC (Financial Services Committee). From 1998- 2002 he served as President of the Superintendency of Pension Funds (UNFE). In 2001 he was elected a First Vice President of AIOS – International Association of Pension Funds Supervising Agencies. In 2004 he became a Chairman of the Finance Committee of the Association of Polish Cities. He holds a graduate degree from the Warsaw School of Economics, a postgraduate degree from Warsaw University and Leon Kozminski Academyy of Entrepreneurship and Management. From 1990-94 he studied at the International Graduate School of Management (IESE) in Barcelona, where he obtained a Ph.D. in finance and received the title Doctor of Business Administration (Finance) IESE/ Navarra University with honors (cum laude).
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Cezary Mech: Socially Responsible Investing (SRI) is also sometimes called sustainable or ethical investing. It aims equally to maximize profits and achieve the social optimum. Investments like SRI are primarily used for environmental protection, sustainable development, protection of human rights and quality of the management. In brief SRI it`s non – traditional methods of investment, consisting in inclusion into investment decision non – financial issues. In case of Social Rating Agency, SRI is realized on the basis of the ESG methodology delivered by our partner ECPI. We examine in each company over 100 factors related to three aspects –Environmental, Social and Governance.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Cezary Mech: Examined aspects of SRI, using the methodology of ESG, are not usually included in traditional analysis, based on quantitative financial indicators.
SRI conducted under ESG analysis is based on extra-financial factors as far as creating artificial measures of business risks and opportunities. Ongoing research indicated that this type of analysis influences the financial success of the company. Positive results of the analysis of environmental, social and governance shows a level of stability and sustainability of the company and thus reduce the investment risk and increase expected returns from investment.
The efficiency of this methodology has resulted in its intensive global development; more and more investors say they are willing to examine ESG factors in their investment decisions.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Poland to manage?
Cezary Mech: In our analysis, especially during the rating committees, which constitute the first stage of verification of the analysis process, we see that environment is the area that is currently the most challenging and where there is the most room for improvement.
Often the cause is lack of access to relevant information disclosed by the company.
Less problems occur in social issues. Generally, however, you will see a big improvement in the approach to the use of SRI standards. Companies pay a lot more attention to the correctness of their relationship to the environment, social and transparency of management.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Poland to analyze?
Cezary Mech: The most important objective of the analysis process is to reach the most reliable data and information, especially in relation to environmental issues. Companies do not always publish the environmental data, and data are not always complete.
It is possible to obtain environmental data from the largest companies listed on the Warsaw Stock Exchange, WIG 20 companies; however, with medium-size companies, for example WIG 40 companies, it was more difficult to obtain information.
Of course, lack of information does not always mean bad practice, but rather a lack of transparent disclosure of information.
Emerging Markets ESG: Why did you establish Agencja Ratingu Spolecnego? Which factors are driving SRI in Poland?
Cezary Mech: The Social Rating Agency is the first sustainable rating agency in Poland. Our main goal is to provide global investors with ethical ratings of Polish companies. In this way, we provide more opportunities to invest effectively in the Polish market. Our activity brings benefits to all sides: companies using the ethical rules of management; investors capable of managing assets in line with profit and SRI; and the stock exchange market with a new opportunity to increase its value.
Now we are working on a new CEE ESG index and our next goal is to extend its activities to companies from Central and Eastern Europe.