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 David Dando, Director of Corporate Governance Programs, HQB Partners, London, United Kingdom.
HQB is a shareholder communications and corporate governance advisory partnership. It assists companies by providing direct communication to their shareholder base in order to convey a specific corporate or transaction message and to gather investor response. Additionally, it analyzes investor attitudes and policies to guide a company’s internal corporate governance and shareholder meeting preparation. David Dando is the former Director of ISS Europe and serves as the company’s chief liaison officer to the investment community.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
David Dando: To my mind socially responsible investment looks at a company’s activities across the entire spectrum of its impact on society including social, environmental and governance issues. Traditionally I think socially responsible investment meant avoiding the so-called “sin” stocks involved in alcohol, gambling and firearms etc. A more modern method is to see whether the company carries out lawful activities in a way which minimizes the negative impact on society, such as avoiding marketing tobacco and alcohol to minors or not manufacturing “cluster” munitions thus increasingly adopting a “best in class” approach.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
David Dando: I think in mainstream investing, the issues that matter are entirely financial in nature. Investors are concerned with the company’s bottom line, dividend yield and long-term stock price performance. They do not consider ESG issues in making an investment decision.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for emerging market companies to manage?
David Dando: I think this will vary depending on a company’s sector and its legal and ownership structure. For example, environmental issues may be a particular concern for a mining company operating in a third world country. Governance issues tend to be an issue in state-controlled, family-owned and other companies seeking to understand the requirements of their international shareholders. Social issues, such as employee health and safety, will be a concern for any company regardless of what country in which they are located.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in emerging markets to analyze?
David Dando: I would have to think that social issues, perhaps because they are the least well-defined in terms of best practice. Also there is not yet any agreed international standard for reporting on the wide variety of social issues facing a company and this makes it very difficult to company companies across sectors and across borders. Having said this, disclosure on ESG issues in general varies enormously depending on the market and therefore it is difficult to generalize.
Emerging Markets ESG: In late March HQB Partners published its Pre-AGM Season Investor Survey 2011. One of the issues noted in the annual survey is the growing importance of engagement. What role does engagement play in emerging markets?
David Dando: I think that institutional investors are going to increase their engagement activities into emerging markets. Investors face increasing pressure both from their clients and society at large to be more proactive in terms of talking to the management of their investee companies about ESG issues. It is therefore likely that companies in emerging markets will experience an increase in the number of investors that are seeking to engage with them directly over the coming years.