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 collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets;
- To reflect on what SRI in emerging markets means to practitioners; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Timothy Nash, President, Strategic Sustainable Investments, Toronto, Canada.
Strategic Sustainable Investments is an independent research and consulting firm. It works with foundations, pension funds and individuals to ensure their money is invested in funds and projects that are building a more sustainable future for everyone. It helps choose managers on their ability to incorporate a wide range of social and environmental concerns into their investment process. It performs research such as the Green Transition Scoreboard®, which details more than $3.3 trillion of private investments flowing into the global green economy since 2007. Timothy Nash is President of Strategic Sustainable Investments. He earned his B.A. in Economics from the University of King’s College (Halifax, Canada) and his M.Sc. in Strategic Leadership towards Sustainability from the Blekinge Institute of Technology (Karlskrona, Sweden) where he returns to guest lecture on ‘Sustainable Economics.’ As Senior Research Advisor to Ethical Markets Media (USA and Brazil), he leads the research team for the Green Transition Scoreboard®. He has been featured in Business Week, The Globe & Mail and Reuters, and has appeared on CBC’s The Lang & O’Leary Exchange.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Timothy Nash: For me, SRI is any investment strategy that uses one or more of the following strategies: negative screening, which omits controversial sectors (weapons, tobacco, gambling, etc.) and/or drops the bottom 20% of ESG performers on a sectoral basis; positive screening, which integrates ESG analysis into the investment process by underweighting companies with excessive ESG risks; and shareholder activism, which uses shareholder rights to push companies towards sustainability by creating shareholder resolutions and voting their proxies. I usually reserve the term SRI for market-based investments in equity and bond markets.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Timothy Nash: Mainstream investment uses only financial analysis to make decisions. SRI adds a layer of ESG analysis to help managers make smarter decisions. It enhances an investment portfolio by assessing material risks such as exposure to water scarcity, mismanagement in the supply-chain, and conflicts of interest on the board of directors.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in emerging markets to manage?
Timothy Nash: Social risks are especially difficult for companies to manage in emerging markets. Cultural norms vary widely, and companies can have a hard time ensuring that employees are meeting their fundamental human needs.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in emerging market companies to analyze?
Timothy Nash: Governance is a very tricky theme for investors in any region, and it becomes especially challenging in emerging markets. Conflicts of interest are much more entrenched, and modern western notions of inclusivity, equity and diversity may not be present. We are often guilty of superimposing our values onto corporate cultures that operate in a different mindset.
Emerging Markets ESG: What is the nexus among emerging markets, ethical markets and the global green economy?
Timothy Nash: The negative effects of climate change are set to disproportionately impact emerging markets, so the global transition to a green economy is of paramount importance to people living there. Additionally, investments in the green economy have much more potential in emerging markets. With less inherited infrastructure, emerging markets have an opportunity to leapfrog the dirty fossil-fuel economy, and invest directly in a cleaner, greener, renewables-based economy.