Five Questions about SRI – Weekly Expert Interview with Andrus Alber, Chairman of the Management Board, NASDAQ OMX Tallinn, Estonia – January 14, 2011

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.

This week’s interview is with Andrus Alber, Chairman of the Management Board, NASDAQ OMX Tallinn, Estonia. 

Andrus Alber was appointed Chairman of the Management Board of NASDAQ OMX Tallinn, Estonia in 2007.  Previously he served in several advisory positions at the central bank of Estonia, the IMF and European Commission.  He graduated from the Faculty of Economics of the Tallinn University of Technology and obtained a Master’s degree in International Relations from the Fletcher School of Law and Diplomacy, Tufts University, Boston, USA.  NASDAQ OMX Tallinn is the only regulated secondary securities market in Estonia. It is a self-regulatory organization, issuing and enforcing its own Rules and Regulations consistent with standard exchange operating procedures. It is licensed and supervised by the Financial Supervisory Authority of Estonia.

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

Andrus Alber:  SRI takes into account not only direct financial aspects of the investment but also environmental, social and governance issues and also a long-term view, not merely plain financial gain of today. SRI may include ethical judgments about healthy working conditions, fair wages or equal opportunity employment.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Andrus Alber:  I don’t think that there is very clear and easy way to distinguish. Of course, the simplest answer would be that SRI takes a more long-term view and is not only after short-term financial gain. In reality, mainstream investment may also have a long-term view with broad responsibilities towards society or community, without emphasizing that it’s SRI. The actions must prove whether SRI is really meant as a systematic principle or is it just labeling to get additional attention from investors. The areas of attention while evaluating SRI may be different. Some investors emphasize employment related issues more than ecological issues, some exclude nuclear industry etc. but if investment considerations go beyond profitability as the utmost criteria we can start talking about SRI.  

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

Andrus Alber: 15-20 years ago it was definitely the environment. The next decade was more focused on governance issues, including the rule of law. Today we still face many governance issues but strong inflow of direct investments from Finland and Sweden, including into financial sector, have improved governance tremendously. For example.  in its Corruption Perception Index Transparency International ranks Estonia in the best place in the Central and Eastern European region and ahead of most South European countries. Also, as a precondition to the accession to the OECD (of which Estonia is a member today) the governance level in Estonia was assessed to be at a satisfactory level. Thus, I would say that social responsibility issues are today most challenging as many companies don’t realize the meaning of this or long term value from it.

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

Andrus Alber: The number of publicly listed companies in Estonia is rather limited. Those companies must provide certain amount of ESG information as a requirement by law, the stock exchange and the Financial Supervisory Authority (FSA). Investments into non-listed companies are usually done by professional investors who use due diligence and on-site visits before investment decisions. Estonia is a very small country and economy. As a result it’s rather difficult to hide any information about your company. At the same time, it’s also difficult to have fully independent professional research.

Emerging Markets ESG:      Estonia adopted the Euro on January 1, 2011.  With the adoption of the Euro, is Estonia an emerging market?  

Andrus Alber: As of 2011 Estonia is internationally the most integrated country in the whole Nordic-Baltic region. We are the only one which belongs to the EU, the Eurozone, NATO and the OECD. In the UN Human Development Index, Estonia was just upgraded to the highest category of Very High Human Development. Our securities market regulation is for some time already fully harmonized with EU legislation and standards. From that standpoint your question is very relevant and we should get rid of the “emerging market” label. At the same time, we should look realistically at the development of our capital market or ESG issues. There we have not yet grown out of emerging market status and need to make further steps to improve the investment climate. Luckily no one in Estonia believes that we have already reached everything in our development and thus, Estonia continues to drive towards developed markets in all aspects of our economy.