Five Questions about SRI – Weekly Expert Interview with Natalie Beinisch, Academic Manager, Principles for Responsible Investment (PRI) – September 2, 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 Natalie Beinisch, Academic Manager, Principles for Responsible Investment (PRI).

The Principles for Responsible Investment Academic Network is a unique research community established to support the work of the PRI  through research on responsible investing. It fosters a network of policymakers, practitioners, scholars and students interested in responsible investment issues. The network uses a web-based platform for knowledge exchange within the responsible investment community. It provides freely accessible avenues for research,  education and network-building on critical responsible investment issues.  Natalie Beinisch runs the Academic Network,  her role focuses on facilitating research on responsible investment and sharing research with the wider community. Her work ranges from helping researchers access data, to hosting internal and external workshops on cutting edge research. Apart from her work at the PRI, Natalie is also completing a PhD at the London School of Economics and Political Science where she focuses on industry self-regulation.

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

Natalie BeinischWow, you start off with the difficult questions! I think it is important to distinguish socially responsible investment (SRI) from responsible investment (RI). SRI in this sense is an investment strategy that attempts to influence the social role in addition to the economic role that commercial organizations play. It does this mainly by agenda-setting: raising issues at shareholder meetings and by behavior change: screening out firms which are not fulfilling social purposes.  RI on the other hand transforms this ‘social’ idea into one of risk – you hear a lot about the transition from values to value based investing, so RI in this respect translates the social questions of concern to SRI funds to ones of
material risk. RI strategies still involves quite a bit of agenda-setting and behavior change, but this may involve different issues and different organizational settings than the ones we associate with SRI (ie a responsible investor may be engaging with mainstream financial analysts to consider a specific social or environmental issue).  In reality, investors who commit to an SRI or RI strategy are most likely implementing some aspects of both an SRI and RI strategy.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Natalie BeinischI think the best comparison I have heard made is by someone from a large financial services firm. He gave an example from his early days in the industry when he needed to make a recommendation on a transport company. While other analysts focused on the company’s Profit & Loss Statement, he began to investigate the safety culture in the organization and saw a major risk which actually materialized and destroyed the value of the company. Simply put then, RI is about searching beyond traditional indicators to anticipate and prevent risk.

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

Natalie BeinischI am probably not in the best position to answer that as I do not work directly with emerging market companies. From my experience, however, it seems pretty clear that social issues are the most difficult question because there are so hard to define and they are so dynamic. China is a pretty good example, we have seen sweeping changes to labour laws, some incremental change in labour organization and this is in addition to existing buyer driven labour certification programmes; I would expect that there are a lot of conflicting issues for a company to manage here.

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

Natalie BeinischI would say that all issues have the potential to be difficult to analyze. The key issue is the quality of the data. While an investor may feel some comfort that they have enough numbers in a certain area like ‘Environment’ to do some benchmarking or ratio analysis, at the end of the day it is a story of garbage in, garbage out. If there is not awareness or capacity among the people producing those numbers about why these issues might be important or what should be considered in such calculations, at the end of the day this is just an exercise. This is not a unique problem to emerging markets, I think it applies everywhere, but just intensifies when there is a lack of institutions demanding good quality data.

Emerging Markets ESG:  SRI is a relatively new asset class and SRI in emerging markets an even newer niche within this asset class.  What is the PRI Academic Network doing to promote research and publication of research about SRI in emerging markets?

Natalie BeinischFirst, I would like to clarify that the position of the PRI is that we believe that SRI should not be a distinct asset class, rather SRI methodologies, such as extra-financial analysis, should be integrated into mainstream investment processes.The network encourages anyone
interested in this subject to get in touch with us. We offer development grants to researchers based in emerging markets help them develop their research projects. Where appropriate, we also provide them with development opportunities at conferences and other events. As you said, this is quite a new area, with not so much data, in this respect, we also encourage anyone who is investing in emerging markets and would like to share their data: this can be anything from investment databases to a willingness to be interviewed or a specific question they would like to have answered to get in touch. We are very happy to see how we can help turn this ‘evidence’ or questions into relevant research projects.

We also promote: I would also like to highlight a couple of young researchers in this area: Damini Gupta, from IIM Bangalore and Nadia Mans, from Stellenbosch. Keep an eye out for them, I am sure you will see them producing very interesting work in the future.