Five Questions about SRI – Weekly Expert Interview with Lauren Compere, Managing Director, Boston Common Asset Management, LLC, Boston, Massachusetts, United States of America – September 30, 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 Lauren Compere, Managing Director and Director of Shareholder Engagement, Boston
Common Asset Management
, LLC, Boston, Massachusetts, United States of America.

Boston Common Asset Management, LLC is an investment manager and a leader in global sustainability initiatives. It specializes in long-only equity and balanced strategies and pursues long-term capital appreciation by seeking to invest in diversified portfolios of high quality, socially responsible stocks. Through rigorous analysis of financial, environmental, social and governance (ESG) factors it identifies what it believes are attractively valued companies for investment. As a shareholder, it urges portfolio companies to improve transparency, accountability and attention to ESG issues.  Its focus is global; it manages U.S. and international portfolios to meet the needs of institutional and individual investors.  It is independent, employee-owned and fields a seasoned, close-knit team of professionals.  Lauren Compere is Managing Director and the Director of Shareholder Engagement at Boston Common Asset Management and has primary responsibility working with Boston Common clients and oversees Boston Common’s global shareholder engagement initiatives.  Ms. Compere has worked in the responsible investment industry for over 20 years and has 14 years of experience in global responsible investing and is a frequent speaker at industry conferences.  Ms. Compere sits on the Governing Board of the InterfaithCenter on Corporate Responsibility (ICCR).  She is the Co-Chair of the Emerging Markets Disclosure Project (EMDP) and serves as the co-lead for the EMDP Korean team.  Ms. Compere previously served on the U.S. Social Investment Forum’s International Working Group Steering Committee and was also Co-Chair (2006-2009).  She has also served as the Co-Chair of the Access to Health Working Group (2005-2008) and the Human Trafficking Sub-Committee (2006-2008) at ICCR (Interfaith Center on Corporate Responsibility (  Ms. Compere received her BA in Environmental Studies from the University of Vermont, and her MS in Community Economic Development from Southern New Hampshire University.

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

Lauren Compere:  Boston Common Asset Management seeks companies with sound governance and a history of responsible financial management that we believe are capable of consistent, visible profitability over a long time horizon.  We integrate environmental, social, and governance (ESG) criteria into the stock selection process and express a preference for best-in-class firms with innovative approaches to the environmental and social challenges their industries face.  As a shareholder, we urge portfolio companies to improve transparency, accountability and attention to ESG issues.  We take a global sector approach in our engagement efforts, so typically we engage companies on the same issues whether they are US, Asian, or European companies.  We understand that companies might be at different stages in terms of policy development and disclosure on ESG issues.  Through our engagement efforts we therefore encourage (and sometimes push) companies to move along the continuum in addressing material ESG issues facing their sector.

For example, we have worked collaboratively under the Emerging Markets Disclosure Project (EMDP), an international initiative to improve corporate environmental, social and governance (ESG or sustainability) reporting in emerging markets.  Through this initiative, which Boston Common Asset Management co-chairs, we encourage companies in select emerging markets (Brazil, India, Indonesia, South Africa and South Korea) to improve their transparency of management of environmental, social and corporate governance (ESG) issues.  One of the vehicles we
have used to do this is an Investor Statement, which was revised in April 2010, and endorsed by 50 global institutional investor signatories with more than $1 trillion in assets under management and 21 affiliated supporters.

Boston Common co-leads the work of the EMDP Korea team with KOCSR and we have worked collaboratively with our Korean partners since 2009 to encourage 10 Korean companies in key sectors to improve their ESG disclosure.  We view sustainability reporting or ESG disclosure as a platform to discuss ESG practices with companies that we engage.  In May 2010, we met with 5 Korean companies to discuss the findings of a
report issued by the EMDP Korea team about their level of ESG disclosure using a scorecard developed by the EMDP project.  The Korean team was the first to use this scorecard and publicly release their findings.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Lauren Compere:  We believe that good  corporate management of environmental, social and governance issues is a proxy  for good overall management and prospects for long-term growth.  In emerging markets where legal protections  or enforcement structures might not be as well developed, investors are looking  for greater assurances from companies that they have internal safeguards to  manage these issues proactively, so that they do not react to them ineffectively in the moment when crises are buffeting them.  We think that SRI investors have this holistic perspective, while mainstream investors do not.

SRI investors believe that disclosure of environmental and social performance is critical for evaluating companies on the following measures:

  • Financial health and risk management, as this information augments financial analysis by indicating material risks and
    potential liabilities that are often overlooked by general accounting standards.
  • Management quality, as ESG issues management can be used as a proxy for strong corporate governance and serve as an indicator
    of a company’s overall management quality.
  • Competitive positioning, as firms in emerging markets are increasingly competing globally and will be assessed according to
    their ability to comply with evolving international standards such as the European Union’s Restriction of Use of certain Hazardous Substances Directive (RoHS) and the Waste Electrical and Electronic Equipment Directive (WEEE) regulations. In addition, home country standards are changing quickly and creating opportunities for companies with forward looking environmental and labor policies and programs to distinguish themselves.
  • Growth potential, as there is a large and growing body of evidence indicating that companies that are pro-active environmental stewards, responsible corporate citizens and strong employers are more likely to create long-term shareholder value.

This is included in the EMDP Investor Statement (April 2010).

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

Lauren Compere:  This really depends on the sector.  For many companies where the regulatory infrastructure is not in place or not enforced, corporate governance issues can be the most challenging including comprehensive anti-bribery and corruption policies which includes training of employees and other business partners.  Recent regulatory reforms in the U.S. and the United Kingdom related to anti-bribery and corruption practices could influence progress in this area.  Increasing board independence and having only independent directors on the key committees such as the auditing, remuneration, and nominating committees continues to be a challenge in many emerging markets especially in Asia.

Our experience in engaging emerging market companies is primarily in Asia and what I have seen is that many companies especially those that might be Tier 1 or Tier 2 suppliers for developed market companies have first tackled environmental issues.  For example, we have seen progress in companies in Korea where they have established their own environmental management systems and are now training their suppliers in this area.  Many electronics companies who export to the E.U. have long adapted their restricted chemicals policies to adhere to the E.U.’s REACH standard.

Managing ESG issues within their global supply chains especially in the area of human rights is one of the key challenges facing many Asian emerging market companies.  Out of necessity though, we are beginning to see some emerging market companies analyze the broader social risks found in their value chains including human rights (forced labor, slave labor and child labor) because they are in industries such as IT (Information Technology) or automotive which have exposure to these issues.  Such examples include child labor in the cocoa fields in Africa and the cotton fields in Uzbekistan; child and slave labor in the coffee fields of Latin America, slave labor in Brazil associated with the production of pig iron; and exposure to conflict minerals sourced from the Democratic Republic of Congo. Where we have seen the most progress related
to company performance or disclosure related to human rights is when companies are part of industry initiatives such as the EICC-GeSI Extractive Working Group looking at industry-wide initiatives to address conflict minerals.

The State of Play of Human Rights Due Diligence:  Anticipating the Next Five Y ears”  a recent report, published by the Institute for Human Rights and Business (June 2010) highlights the need for companies to implement comprehensive human rights due diligence policies and procedures.  According to the report, investors, consumers, and other concerned stakeholders are requiring more transparency and traceability mechanisms in supply chains to mitigate a company’s human rights risk exposure including exposure to human trafficking and all forms of modern day slavery.  We support this report’s conclusion that “Businesses need to look more rigorously across all their contractual relationships: not just in the value chain but also in terms of host-government agreements, public-private partnerships and joint ventures, to ensure that their conduct is consistent with human rights standards.”

Better practices and disclosure on social issues especially human rights may be the most daunting challenge facing emerging market companies and yet the most essential to address given growing global norms.

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

Lauren Compere:   All of them are challenging to varying degrees for investors given the lack of consistent and comprehensive disclosure especially in emerging Asia.  While many companies will disclose on policies they have adopted, only some provide key performance indicators or data that is disclosed year by year to show progress – most frequently only on the environment.

To illustrate an example in one key market, The EMDP Korea Team completed a baseline study in April 2010 called Unlocking Investment Potential: ESG Disclosure in Korean Companies authored by the Korea CSR Research Service (KOCSR) with significant support from EIRIS and Responsible Research.  The main aim of this report was to further institutional investors’ understanding of Korean SRI/CSR landscape and the status and trends of Korean companies.  According to the report’s analysis, since 2006, the number of South Korean companies publishing CSR reports has increased rapidly, however, many companies, even the larger listed ones, still do not publish CSR reports and it is hard to find any reporting within the financial and service sectors and amongst holding companies.  Most Korean companies have, thus far, regarded environmental management as a key ESG strategy but they show relatively inadequate understanding and reporting on social issues, especially human rights and stakeholder issues, apart from corporate philanthropy for the local community. Regarding governance issues, Korean companies showed good overall practice on ‘core’ governance issues such as independence of the board members and audit committee. Based on the report’s findings and relevant ESG issues, we engaged with 10 companies to begin to report non-disclosed areas and incorporate more systematic stakeholder involvement into their ESG strategies establishment, monitoring, auditing and reporting process.

Some of the key ESG issues we pushed with all 10 Korean companies were disclosure of more specific information on anti‐bribery systems such as training for employees/business partners, compliance mechanisms and details of its monitoring/auditing systems, risk assessment as to areas of vulnerability, correct procedures for the appointment and remuneration of business partners and details of stakeholder dialogue/engagement.
We also encouraged them to improve their reporting on human rights through the development of a more extensive policy that describes how they include this issue in their overall risk assessment policies and in their global supply chain management systems.

We believe that the challenges described in Korea are very similar across Asia.  The collaborative work done under the Emerging Markets Disclosure Project with global research providers working with local research providers to raise the quality of ESG research, and global
investors working with local investors on  collaborative company engagement related to ESG disclosure, represents a framework which could duplicated in other markets.

Emerging Markets ESG:  You have been working in the SRI field for over 20 years and have held leadership positions in several emerging market initiatives.  What has changed in SRI in emerging markets during the past two decades?  In your
opinion, what is the most pressing issue in SRI in emerging markets today?

Lauren Compere:  Over the last two decades more SRI investors have looked for growth opportunities in these fast-growing regions of the world.  There has been a gradual but significant shift in investor expectations that emerging market companies should be actively assessing material ESG risks and opportunities and actively managing them.  This includes increasing the quality and level of disclosure.

Given the growing expectations that multi-national corporations have placed on their suppliers to adhere to codes of conduct that incorporate ESG issues, we have seen progress in the active management of ESG issues including training beyond first and second tier suppliers.  Many emerging market companies themselves are now global players and investors are holding them to the same global standards on ESG issues as they would US or European companies.  Lastly, some emerging market companies are learning first hand what it takes to maintain their own “social license to operate” as they establish operations in other emerging or frontier markets such as India or Vietnam and are faced with pressure from civil society groups or communities.

As regulatory, consumer, and investor pressure from the US and Europe continues to rise related to understanding a company’s total ESG footprint (Carbon Disclosure Project, Water Disclosure Project etc), emerging market companies  will be challenged to actively assess their
global footprint related to social (human rights) and environmental (water and carbon) issues and to have in place policies and procedures to mitigate any ESG risks that they might face.