Five Questions about SRI – Weekly Expert Interview with Ann Logue, CFA, Author of “Emerging Markets for Dummies” and “SRI for Dummies,” Chicago, USA – March 25, 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 Ann Logue, CFA, Author of Emerging Markets for Dummies and SRI for Dummies.

Ann Logue is a freelance writer and consulting analyst who is fascinated by business and technology. She has a particular interest in corporate governance and regulatory issues. She is the author of “Emerging Markets for Dummies” (Wiley, 2011); “Socially Responsible Investing for Dummies” (Wiley, 2009); “Day Trading for Dummies” (Wiley, 2007); and “Hedge Funds for Dummies” (Wiley, 2006); and has written for Alpha, Barron’s, BusinessWeek Chicago and Newsweek Japan, among other publications. As an editor and ghostwriter, she worked on a book published by the International Monetary Fund and another by a Wall Street currency strategist. She is a lecturer in finance at the University of Illinois at Chicago. Her current career follows 12 years of experience as an investment analyst. She holds a B.A. from Northwestern University, an M.B.A. from the University of Chicago, and the Chartered Financial Analyst (CFA) designation.

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

Ann Logue:  I define it as investing in companies with good records in corporate governance, environmental activity, and stakeholder relations. The idea is to align an investment with a shareholder’s values and, it is hoped, end up with a portfolio of companies that are more likely to outperform the market (although the evidence on that is mixed.) One of the main reasons I wrote Socially Responsible Investing for Dummies is that I suspected that a lot of people were afraid to invest, thinking that it was somehow immoral, and that that may limit their ability to retire, send their children to college, or do whatever it is that they want to do.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Ann Logue:  The first factor is shareholder involvement. People who invest this way are going to do their research, ask questions, and hold management accountable. That’s good, and really, it’s what all investors should be doing.

 A second factor is interest in using the power of capitalism to make the world a better place. That’s possible, clearly – that’s why we’re capitalists! Social investors apply that when they make their investment choices.

A third factor is more complicated, and that’s the emotional involvement. Some social investors fall prey to wishful thinking, to falling in love with a company for its mission rather than its results, or to thinking that they can get MillerCoors to abandon alcohol production if they don’t invest in it. Social investing has a reputation for poor performance because of this fuzzy thinking; if a portfolio is structured with risk and return in mind, there is no reason why performance should be different, but a lot of investors are thinking with their hearts rather than their heads. As the traders like to say, the stock doesn’t know you own it.

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

Ann Logue: The environmental issues. Environmental protection is a luxury, as much as we might like to think otherwise. To some extent, the developed world has exported its pollution by moving production to countries with less-strict laws. Leather tanning, for example, uses nasty chemicals, and that’s why it’s rarely done in the United States anymore. Only very high-end companies can afford to produce leather here. That’s one reason why most of our shoes are made in China.

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

Ann Logue:  The hardest aspect for investors to analyze is the social aspect, and that’s true in any market. That’s because definitions of social investing vary (your definition may be different from the company’s), and because companies are good at obfuscation.

Emerging Markets ESG:  You are the author of Emerging Markets for Dummies and SRI for Dummies.  In your opinion, where is the nexus between emerging markets and SRI?

Ann Logue: Well, my rant about the environment aside, companies in emerging markets have the opportunity to incorporate best practices for the environment, governance, and stakeholder relations, and many of them are doing just that. An entrepreneur forming a new company can get it right from the start. (That goes for governments trying to come up with effective regulation, especially in those countries addressing modern capitalism for the first time.)

Also, we’re seeing capitalism work the way that it should on the upside: increasing economic opportunities for everyone. Look at the revolts in North Africa. They started in Tunisia, when a fruit vendor named Mohamed Bouazizi set himself on fire to protest demands for bribes from government inspectors. People want to make a living and express themselves, and as more people can do that in the world, we’ll all be better off.