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 Elaine Cohen, CEO, Beyond Business, Israel.
Beyond Business is a Corporate Social Responsibility consulting and Sustainability Reporting consulting firm based in Israel serving local and international clients. It specializes in helping businesses improve business performance though sustainability strategy, sustainability program implementation and transparent performance reporting. Beyond Business was formed in 2009, following the merger of two smaller consulting firms in operation since 2005. Elaine Cohen has over 25 years of business experience, with global, local, and small businesses, and extensive experience in the non-profit sector. Significant roles have been with Procter and Gamble in Europe in supply chain management positions (1982-1990) as well as Vice-President, Human Resources and Social Responsibility with Unilever Israel (1997-2005). Elaine is the author of CSR for HR: A necessary partnership for advancing responsible business practices (Greenleaf, 2010); maintains three blogs on CSR and Sustainability topics; writes frequently for leading online and print publications; and lectures widely on sustainability and responsible business practice. Elaine tweets at @elainecohen.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Elaine Cohen: I see three layers of SRI. The first is “do no harm”. This means excluding companies from an investment portfolio that are potentially damaging to society and environment, the so called “sin stocks”. The second is “do good”. This is about positively selecting companies for your investment portfolio that have a positive sustainability profile by managing their impacts effectively. The third is “deliver positive impact”. This is about investing in companies whose core business makes a positive contribution to society and delivers measurable social and environmental benefit. In short, SRI is putting your money where your values are.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Elaine Cohen: The key difference in SRI is the fact that a return on investment is not the only parameter that drives investment decisions. All investors wish to make a return, but SRI investors may commute part of their short-term cash return in order to achieve an acceptable (i.e. in line with their values) social and environmental return though the longer term. This means creating an investment portfolio which has a mix of companies that either “do no harm”, “do good”, or “deliver positive impact”. Ultimately, in the longer term, investors should realize a competitive ROI and achieve their sustainability objectives, because sustainable businesses have been shown to deliver higher shareholder value over time. SRI investors take the long term view. Mainstream investors tend to be more impatient.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Israel to manage?
Elaine Cohen: There are challenges in all three aspects of sustainable business performance in Israel. Israeli public companies demonstrate low transparency and advanced governance practices are not well embedded, by and large. The concentration of many businesses in the hands of a few tycoons has been a governance-related issue which has recently hit the headlines. Environmental challenges are significant: with few natural resources, chronic water scarcity, high landfill costs, lack of national infrastructures for recycling etc., Israeli companies need to become much better at managing environmental impacts. Social challenges are also crucial – high poverty levels, national security, food insecurity, social conflict, education quality, workforce diversity are social challenges which Israeli companies must consider.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Israel to analyze?
Elaine Cohen: Lack of transparency prevents deep analysis of Israeli companies by investors. Only a few public companies publish full GRI-aligned Sustainability Reports – only seven companies so far in 2011 (compared with six in 2010) and other sources of ESG information are limited to that required by law, which is not extensive. The Israeli Ministry of Environmental Protection is stepping up pressure for public reporting on environmental responsibility so it is likely that this will lead to greater analysis possibilities in coming years.
Emerging Markets ESG: Which opportunities exist at present for SRI in Israel? Which metrics or tools can investors use to analyze these SRI opportunities in Israel?
Elaine Cohen: Opportunities for SRI in Israel are mainly with start-up or young companies which have a core sustainable proposition in areas of green or clean technology, biotech and web-based innovation and tools. Israel has been called a “start-up nation” and the speed and quality of innovation is astounding. This is SRI as “deliver positive impact”, where investors can choose to support new, sustainable technologies. More traditional businesses are lagging in uptake of comprehensive sustainability strategies and information is sparse. A Social Responsibility Index in Israel, the Maala Index, exists as a tool to rank companies sustainable practices, but only around 50 locally-traded public companies (of a possible 350 or so) voluntarily participate in this ranking, which is based on responses to a questionnaire which are neither verified nor disclosed. Corporate transparency in the Israeli market must improve so that potential investors and analysts can make informed decisions.