• 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 Professor Freek Cronjé, Director, Bench Marks Center for Corporate Social Responsibility (CSR), North West University, Potchefstroom Campus, South Africa.

The Bench Marks Center for Corporate Social Responsibility, North West University, South Africa, was established in January 2012.  A research grant from SIDA, the Swedish International Development Cooperation Agency, will support the Centre during the first two years.  The Centre aims to stimulate and conduct high-quality innovative research and training on corporate social responsibility; provide the space for dialogue amongst various stakeholders, in particular government, civil society and the private sector; create synergy between basic and applied research (‘theory / policy and practice’); create a specific research focus in CSR at the Potchefstroom Campus of the North-West University in South Africa; and learn from the studied experiences of communities that are living through and experiencing actually existing CSR-CSI programmes and initiatives, with a view of changing it to benefiting people and the planet, contrary to only enhance profits.  Professor Freek Cronjé is Associate Professor in Sociology at the Potchefstroom Campus of the North West University in South Africa, and was Chair of the department until 2010. Since then, he is the Director of the Bench Marks Centre for CSR at the same university, also at the Potchefstroom Campus. Most of his research is conducted under the ‘umbrella’ of sustainable development. His specific research interests are migration studies and CSR in the mining sector. Professor Cronjé is currently involved – with the Bench Marks Foundation (an international NGO based in Johannesburg) – as one of the lead researchers in an extensive research project on CSR and sustainability issues in the SADC mining environment. Apart from CSR research in the mining sector of South Africa, the Centre recently finished CSR research projects in Zambia (copper – 2008), Botswana (diamonds – 2009) and the Democratic Republic of the Congo (gold – 2010 & copper – 2011). Flowing from the research work, Professor Cronjé delivered numerous peer reviewed articles and contributions in edited books as well as conference presentations (nationally and internationally). He also acts as supervisor / promoter for a substantial number of Masters and PhD students in the field of CSR.  Prof. Cronjé is currently also the President of the South African Sociological Association (SASA).

Emerging Markets ESG:  How would you define socially responsible investment (SRI)?

Professor Freek Cronjé:  Socially responsible investment (SRI) carries very strongly with it the issue of ethical behaviour.  The challenge therefore, in simple terms, is to invest in such a way that the main three dimensions of development, i.e. the economic dimension, the environment as well as the social dimension are being ‘looked after’ in a responsible way.   To combat and prevent a potential conflict of interests, it is of course also important that the shareholders (as well as other stakeholders) must be on board and ‘on the same page’ regarding these ‘responsible’ investment initiatives.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Professor Freek Cronjé: The main distinction is that SRI is not only focused on profits, but also has a strong focus – within the whole investment ‘exercise’ – on sustainability regarding especially the environment and people (e.g. communities adjacent to huge Multi-National Companies (MNC’s), women and children, migrants and refugees, etc.).

Emerging Markets ESG:  Which extra-financial theme – environmental, social or governance – is the most challenging for companies in South Africa to manage?

Professor Freek Cronjé: Mining companies operating in the Southern African Development Community (SADC) – the primary focus of our research – really battle regarding environmental sustainability, depite strict regulation.  The implementation and monitoring of relevant legislation also seems problematic due to amongs others, poor capacity, corruption (on the side of the government and certain companies) and companies that are ‘cutting corners’.  One also finds often that international companies view environmental responsibility in Africa in a less serious light (than for example in Australia or Canada) and that Africa can become potentially a ‘pollution haven’.  Social issues are also a huge challenge for companies; here we think of the general well-being of communities adjacent to corporates, local economic development (LED), human resource development, issues regarding indigenous peoples, stakeholder engagement and participation, etc.

Emerging Markets ESG:  Which extra-financial theme – environmental, social or governance – is the most challenging for investors in South African companies to analyze?

Professor Freek Cronjé:  Although integrated reporting (IR) starts to become more and more important for companies, I will say – again – the the environmental and the social dimensions are exceptionally challenging to analyze.  The question of governance is also an increasingly important issue; poor governance in South Africa, at all three levels (local, provincial and national) is the order of the day, and potential investors must ‘calculate’ that into the investment equation.

Emerging Markets ESG:  You have conducted extensive research on the mining sector in South Africa and other African countries.  How can mining be conducted more responsibly and sustainably?  Which mining impacts are most important to socially responsible investors?

Professor Freek Cronjé: I would say that the key to this is to (try to!) bridge the gap between policy (legislation as well as policies of the company) and practice.  It is of course easier said than done; amongst other aspects, we are advocating towards a more ‘standardised’ legislation in SADC, that will also make implementation and monitoring easier.  Some of the CSR and sustainability programmes of companies are mis-directed; therefore, the question of stakeholder engagement, stakeholder dialogue, and stakeholder participation are also of the utmost importance.

• 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 Dragomir Boyadzhiev, Managing Partner, Copula Capital Advisors, Sofia, Bulgaria.

Copula Capital Advisers is a comprehensive corporate research and advisory services entity founded in mid-2009 by a team of veteran accounting and investment professionals with extensive experience in corporate advisory, financial analysis, portfolio and risk management and broad professional skills in the scope of accounting services.  With a cumulative investments and advisory experience of more than 15 years, it pretends not only to know the investment environment in Bulgaria and the region thoroughly, but more importantly to understand it.  It closely monitors and examines its sectors of interest, in order to be constantly up to date with recent technologies and trends.  Copula Capital Advisors currently provides a broad range of both traditional and environmental, social and governance (ESG) sector and company research, valuation and analysis, including macro-economic assessments of different companies, sectors and industries, as good as private equity advisory for its institutional clients.  It closely looks at and specializes in the most promising sectors, such as energy & renewable energy sources (RES), hi-tech, biotechnologies, telcos & IT. Thus it keeps its devotion to support clients with the best service by offering core and independent views.  Dragomir Boyadzhiev has extensive experience in portfolio and risk management, econometrics and statistical analysis. His professional record includes a wide range of activities in the field of financial analysis and securities trading.  From 2005 until 2007, Dragomir worked consequently as a Financial Analyst, Chief Financial Analyst and Investments Consultant for Deltastock AD, later he joined Expat Asset Management EAD as Portfolio Manager and Procurator.  Currently he is Managing Partner at Copula Capital Advisors OOD, Investments Consultant at Denovo EAD and CEO at the Bulgarian Investment Managers Association.  Dragomir holds a Bachelor’s degree in Logistics from the Technical University of Sofia, a MSc degree in Finance from the University of Veliko Tarnovo and a Degree in Investments from the Postgraduate Institute at University of National and World Economy, Sofia.  In early 2006 he was certified as an Investment Consultant by the Bulgarian Financial Supervision Commission.

Emerging Markets ESG:  How would you define socially responsible investment (SRI)?

Dragomir Boyadzhiev:  Investors usually focus their strategies on the required rate of return on their investment.  When additional social and ecological constrains are adopted, investors weigh the social and ecological costs of their investments along with profits.  Specific issues, such as consumers and employers protection, diversity, environment, fairtrade and human rights are important guidelines for socially responsible investors.

Common topics for socially responsible investments include:  avoiding investments in companies that produce or sell weapons, gambling and addictive substances; and seeking out companies engaged in environmental sustainability and renewable energy (the so-called negative and positive screening).  Socially responsible investments can be made in individual companies or through a socially responsible exchange-traded fund, mutual fund or pension fund.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Dragomir Boyadzhiev: If referring to the old school (and still the mainstream) theory of finance, one will observe that the only goal of the company is to maximize both its profit and shareholders’ wealth.  There is an underlying view that the purpose of a firm is not to work socially and eco-responsibly, but merely to make money… at all costs.

However, more and more professionals believe that being responsible and being wealthy (profitable) are two terms, which are not mutually exclusive.  Making additional spending for some specific issues, which directly affect the company and its activities, could help the overall corporate value grow in the long term.  And when an investor adopts this view, he puts these socially responsible companies on his screen.  He begins to follow a long-term investment approach that integrates economic, environmental and social considerations for the selection and retention of investments.  He becomes a socially responsible investor.

Emerging Markets ESG:  Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Bulgaria to manage?

Dragomir Boyadzhiev:  Despite the fact that it is part of the European Union (EU), Bulgaria is still an emerging market.  The country has much to do in many areas and, of course, ESG issues are among these.  While there are good practices employed and many activities undertaken with respect to corporate governance issue, environmental and social issues are still not being respected fully.  Many companies do not understand the need of being environmentally and socially responsible or do not want to adopt this code of behavior.  It is only recently that some of the largest corporations started to pay attention to environmental and social issues. And unfortunately the number of these companies is not large at all.

Emerging Markets ESG:  Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Bulgarian companies to analyze?

Dragomir Boyadzhiev:  There is a significant lack of information regarding all of the ESG issues.  At the same time, the stakeholders – mainly investors and the society at large – are beginning more and more to pay attention to corporate activities and the footprint of companies.  There are many ecologically-oriented NGOs engaged in environmental issues and many industrial chambers addressing ethical, governance and social issues; however, their information is usually subjective, unclear, and most of all non-quantified.  These problems are now in the past, since the Bulgarian Investment Managers Association, being part of the European Society of Financial Analysts Societies (EFFAS) initiative, adapted and presented the EFFAS key performance indicators (KPIs) to the Bulgarian business community.  And with our next step – the establishment of the first core ESG advisory company (Copula Capital Advisors), my belief is that we will be able to offer a standardized information tool to financial analysts and investors.

Emerging Markets ESG:  What is the business case for ESG analysis, disclosure and management in Bulgaria? Which challenges will your new firm face in growing its business?

Dragomir Boyadzhiev: There are very few ESG reports published by Bulgarian companies until now.  We are currently partnering with two industry chambers on the establishment of their environmental, social and governance codes.  It is obvious for us that the business community in Bulgaria is becoming more and more concerned about ESG reporting and realizes the need for it.

Major problems will appear and they have already started to appear for us, regarding the readiness with which each rated company partners in the overall process of collecting ESG information and preparing the ESG rating.  The process of collecting the ESG information is crucial for the whole procedure and the partnership with the company is for its own good.  It is obvious that the exactness of the rating depends strictly on the quality of the information which has been provided by the company.