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 Lotte Griek, Interim Manager, Research Products, Sustainalytics, Timisoara, Romania.
Sustainalytics is a leading global provider of environmental, social and governance (ESG) research and analysis, with nearly 20 years of experience in the Responsible Investment (RI) and Socially Responsible Investment (SRI) markets. Lotte Griek is the Interim Manager of the Timisoara, Romania office, which opened in May 2011. Moreover, she is responsible for researching the financial sector, coordinates
the research of companies in Emerging Markets, and is involved in account management, the alert service and strategic research planning. She has a special interest in microfinance, project finance, money laundering and issues related to bribery and corruption. Prior to joining Sustainalytics, Lotte worked for a research house and major financial corporation, and has held posts as a volunteer for several non-governmental organizations. She studied International Relations at the University of Leiden, the Netherlands, and Political Science at University College Utrecht, the Netherlands. Lotte speaks English, Dutch, Spanish and French.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Lotte Griek: Socially Responsible Investment, as I would define it, is the integration of extra-financial factors, or rather, Environmental Social and Governance (ESG) criteria into investment decisions. SRI can be described as an investment strategy or philosophy which assumes investment decisions are taken from an ethical perspective or by taking long-term sustainable business practices into account. In general terms, it is assumed that SRI, on the one hand excludes those companies that are involved in serious controversies with regards to ESG themes, or are more generally involved in industries which are considered unsound. SRI can also encompass engagement activities which aim to improve company practices, or alternatively encompass best-in-class investment approaches, selecting companies that outperform their peers in terms of ESG performance.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Lotte Griek: Whereas mainstream investment is focused mainly on financial gains, SRI distinguishes itself from this by incorporating extra-financial factors, namely the aforementioned ESG issues. SRI not only takes ESG risks and opportunities into account but it is assumed that,
vis-à-vis it also accounts for the long-term viability of a company’s financial performance. It is assumed, and there are some studies that are starting to demonstrate this correlation, that companies who factor in ESG risks, are more likely to be successful and financially viable options in the long run.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for emerging market companies to manage?
Lotte Griek: Although some differences can be seen amongst different industries and countries, governance is the area in which the largest amount of regulatory information is available to companies to help clarify what is expected of them in terms of disclosure and the performance.
Social issues are well defined through numerous international treaties and more generally through international human rights law. Environment is an area which is left relatively undefined and unregulated, without a clear set of guidelines on which companies can base their policies and practices. Given these assumptions, the environmental aspect seems to be the most difficult to incorporate into management decisions, regardless of the regions one wishes to focus on, but especially in Emerging Markets where most domestic regulatory environments fall short in dictating clear guidelines and criteria for companies for this aspect.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in emerging markets to analyze?
Lotte Griek: In our research of companies operating in emerging markets, the trend seems to show that, taking into account small differences within individual emerging market countries, disclosure or transparency in terms of governance is the greatest. Although social issues, again taking some regional differences amongst emerging markets countries into account, seem to be better understood, these, along with environmental issues have a lower ranking in overall corporate disclosure. Since transparency and disclosure is key to making informed (SRI) investment decisions, it is these areas that are most challenging for one to analyze.
Emerging Markets ESG: Sustainalytics opened its office in Timisoara, Romania in May 2011. As interim director of this new office, what are your initial impressions about collection and analysis of ESG data in emerging markets? Do you note any
significant differences between emerging markets and developed markets?
Lotte Griek: There is definitely a difference between emerging and developed markets, namely in the perception of risks and controversies related to the different ESG themes, but also in the perception of the importance of each of the three themes relative to one another. In large part the understanding of the importance of key ESG issues is driven by cultural differences and is triggered by those topics most commonly addressed in social media in a given region. Furthermore, there is a distinct difference in the amount of disclosure or transparency, which could, in part, be due to a lesser understanding or awareness of such issues, but could also be driven by the lower demand from investors and other
stakeholders for such information.