Five Questions about SRI – Weekly Expert Interview with Teresa Fogelberg, Deputy Chief Executive, Global Reporting Initiative (GRI), The Netherlands – June 3, 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 Teresa Fogelberg, Deputy Chief Executive, Government Relations, International Organizations, Development & Advocacy, Global Reporting Initiative (GRI), The Netherlands.

The Global Reporting Initiative (GRI) is a network-based organization that pioneered the world’s most widely used sustainability reporting framework. GRI is committed to the framework’s continuous improvement and application worldwide. GRI’s core goals include the mainstreaming of disclosure on environmental, social and governance performance.  GRI’s Reporting Framework is developed through a consensus-seeking, multi-stakeholder process. Participants are drawn from global business, civil society, labor, academic and professional institutions.  As GRI’s Deputy Chief Executive Teresa engages in strategic external relationships with businesses, governments, civil society and other stakeholders. Teresa started her career as an anthropologist at Leiden University in the Netherlands. She has spent many years in development organizations, such as ILO, the Netherlands Ministry of Foreign Affairs, and USAID, and in several countries in West Africa, where she specialized in gender issues and famine-early warning systems. She has 13 years’ experience across various managerial positions at the Netherlands Ministry of Foreign Affairs, including Head of the Department for Women and Development, and the Research and Higher Education Department. She was also director of climate change and led the Dutch delegations to the UN climate change and Kyoto protocol negotiations.

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

Teresa Fogelberg:  There are two ways of explaining this. By investing in a socially responsible way, we can be proud that the money we leave to our children and grandchildren, which we saved as members of pension funds, or as employees or entrepreneurs, contributed to a better world. We can also turn this around to say: Wouldn’t we be ashamed if the money we left our children and grandchildren was a result of wanting to make a quick and dirty profit, over the backs of suffering people and depleting natural resources?

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Teresa Fogelberg:  Socially responsible investors were, and are, pioneers in the field: The creative ones, the ones who have led the way for others, who took risks. These investors have been proven right. Five years ago people said SRI was just charity – ‘goody-goodies’ throwing away money. Those people have been proven wrong.

SRI involves strong criteria setting out what not to do (what ‘harmful’ activities and practices to avoid investing in) and what to do (what good things to invest in). Mainstream investing only looks at short-term profit. In the end, there should be no distinction – all mainstream investment should be responsible.

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

Teresa Fogelberg:  Social issues are probably the easiest to report on – for example, poverty is a key issue and therefore top in the hierarchy of issues to address. It is also the most evident of all impacts an organization can have.

Difficulties in environmental and governance reporting depend on the location of the organization: whether it is rural or urban. Urban organizations face immediate problems around pollution. For example, in China urban pollution is high on the agenda so the government has stepped in to take control. In contrast, governance is difficult to report on, as unfortunately in several developing countries there still often prevails a culture of corruption to deal with. For rural companies, environmental reporting can be very difficult – it’s easy to throw away waste and pollution is less oppressive and apparent.

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

Teresa Fogelberg:  For investors, the easiest is environment – there are tangible problems with quantitative performance data. Companies can set targets, measure a baseline and monitor their results. By reporting these results in a sustainability report, companies give investors all the information they need and it’s easy for them to check.

Social performance, including human rights issues, has traditionally been more difficult. However, the new indicators and updates in GRI’s latest guidance – the G3.1 Sustainability Reporting Guidelines – incorporate the so-called Ruggie Framework on Human Rights (named after UN Special Envoy on human rights Professor Ruggie), helping companies get a grip on measuring and reporting their social performance around human rights. These reports then give investors the information they need.

Governance is the most challenging aspect for investors to analyze. It is easy for companies to claim on paper that they have good governance structures in place, but that may not always be the case. This is the least transparent part of sustainability – who is checking their claims? GRI’s next generation of Guidelines is currently being developed, and changes in the guidance could make corporate governance an easier area for investors to navigate.

Emerging Markets ESG:      15 years ago there was no standardized reporting framework for ESG reporting.  In 2000, GRI issued its first Sustainability Reporting Guidelines.  What role have emerging markets played in the development of GRI and what role does GRI play in the improvement of ESG reporting in emerging markets?

Teresa Fogelberg:  Emerging markets play a huge role in the GRI network’s activities, and this role is continuously growing. Between 2005 and 2009 the number of GRI based reports from emerging market countries quadrupled, particularly in South Africa and China. Organizations from Brazil, India, China and South Africa represent a fast-growing, competent, vocal GRI reporting community, both internationally and locally. They have a big impact on the choices GRI is making.

When GRI’s third generation of Reporting Guidelines – G3 – was released in 2006, there was criticism from emerging market countries that community impacts were not represented sufficiently in the guidance. As a result, this content was further developed in G3.1, which was launched in March this year.

GRI has regional offices – ‘Focal Points’ – in China, India and Brazil, and GRI is currently working on extending its activities in southern Africa. GRI’s Governmental Advisory Group also includes members from Brazil, India, China and South Africa.

Givernments in South Africa, India and China are leading the way in legislating sutainability reporting. Governments and regulators in Eruope and the USA are following – this is creating competition.