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 Ron Robins, Founder and Analyst, Investing for the Soul, Niagara Falls, Ontario, Canada.
Investing for the Soul provides resources for spiritually or ethically oriented investors and investment professionals. In addition to the wealth of information available online, Investing for the Soul offers a variety of services, including: company research, portfolio audit, training workshops and tutorials. Ron Robins was, and still is, a pioneer in the concept of ethical investing. To help in this task, he conceived and created Investing for the Soul in 2001. By 2005, Investing for the Soul was offering Ethical Investing Workshops and Ethical Investing Services, talks, and enjoying widespread media coverage. The workshops and services show/assist investors and investment professionals in finding, researching, and evaluating investments according to a set of desired personal values. In 2007, he added Ethical Investing News & Commentary to his website; an e-newsletter The Soul Investor; and the Enlightened Economics blog to create a discussion in formulating a practical economics that integrates consciousness, natural-law, and free-market theory. Mr. Robins holds a MBA degree from Maharishi University of Management, USA.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Ron Robins: The words—“socially responsible’—suggest that an investor invests in ways they and society deem socially responsible. Of course most investors do not do that. Though when surveyed, the majority of them say they want to invest that way. Socially responsible investing, or SRI, also now encompasses green, sustainable, ‘impact,’ community, faith, responsible and ethical investing. For some, it also includes microfinance lending.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Ron Robins: SRI means applying personal and/or societal values to investments, whereas mainstream investing is primarily concerned about profits, no-matter how they might be obtained. Also, many mainstream investors believe that by prioritizing investments according to an SRI framework, they’ll lower their returns. However, numerous studies from all over the world generally show SRI portfolios provide similar—and sometimes better—returns than mainstream portfolios. (I have on my site a good listing of these studies, with links, at Ethical Investing Studies Research.)
Also, in mainstream investing, time horizons might be lower than for SRI. This is because many of the factors that SRI investors are interested in—environment, social and governance (ESG) issues—have usually and predominantly longer term effects. It is well known that conventional money managers, especially in America, are focused very much on short term results and so don’t care much about particular long-term problems such as environmental degradation, that a company might be causing.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in emerging markets to manage?
Ron Robins: Wow that’s a tricky one; however, I would have to say it is governance which represents the greatest challenge. Due to weak environmental, health, safety, labour and social laws and enforcement, corporate managers often have wide variances in how they might handle related issues. If management handles things badly, the companies’ reputation and stock price can suffer. Remember when Foxconn in China (manufacturer of electronic components for Apple, Dell, HP and others) had multiple suicides amongst its workers due to terrible working conditions. Well, it was Foxconn’s management, only after being shamed and forced into action by associated electronics’ companies and regulators, that helped improve the situation for its workers. All those highly regarded electronics’ companies reputations were smeared by Foxconn’s labour issues. So for me, no-matter what the problem on the ground is for companies operating in emerging markets, it’s all about the caliber of governance. And that is perhaps more important in emerging markets than for anywhere else.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in emerging markets to analyze?
Ron Robins: It’s a toss between environmental and social factors. Governance activities can be more clearly understood, as management usually has a track record. On the other hand, factors associated with the environment and social conditions can be quite difficult to assess. Often companies can hide environmental problems, since environmental standards and enforcement are poor. Also, they can bribe local officials to keep quiet about environmental problems. These problems also pertain to social conditions as well.
Emerging Markets ESG: Your work highlights spirituality and values-based investing. What role do values play in SRI in emerging markets?
Ron Robins: For me, they are important. But unfortunately, applying ESG type values to emerging market investments are prone to great difficulties, since ESG reporting data and information from them is largely unsatisfactory. However, if investors, investment funds and banks, for instance, insisted on requiring such information, then this would benefit everyone. Companies would receive better emerging country support for their activities as well. Also, since we know that companies with higher ESG credentials tend to be most profitable, it particularly benefits investors. And emerging countries themselves are now seeing the value and importance of promoting ESG disclosure. For instance, on November 24, 2011 the Securities and Exchange Board (SEBI) of India enacted regulations requiring all listed companies to produce CSR reports. And the principal stock exchanges of Malaysia and South Africa are in the forefront too, requiring their listed companies also to report on ESG issues. So, applying ESG values to emerging market investments pays-off for everyone: for the people in emerging markets, for company profits—and for investors.