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 collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets;
- To reflect on what SRI in emerging markets means to practitioners; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Roberta Simonetti, Coordinator, Sustainable Finance Program, Center for Sustainability Studies (GVces), Business Administration School, Getulio Vargas Foundation (FGV-EAESP), Sao Paolo, Brazil.
The Center for Sustainability Studies (GVces) of the Business Administration School of the Getulio Vargas Foundation (FGV-EAESP) is a place of study, learning, reflection, innovation and knowledge production, staffed by professionals with a wide range of multidisciplinary expertise and a tremendous capacity for creativity, who are engaged and committed, curious and daring and, in particular, who have a genuine desire to change the world. GVces works on the formulation and monitoring of public policies, the construction of self-regulation instruments and the development of business management tools and strategies for sustainability, on a local, regional, national and international level. This work is underpinned by the following activities: formal and informal education; applied research and publications; promoting debate, mobilization and awareness-raising on the topic; communication; and sharing experiences and information, thereby disseminating the concepts and practices of sustainability in all its forms. Roberta Simonetti joined GVces in 2006 as Coordinator of the Sustainable Finance Program. This program engages with the financial sector in order to increase awareness, build knowledge and capacity, aiming at a more sustainable financial sector, especially in Brazil. Among its projects is the partnership with the Brazilian Stock Exchange (BM&FBOVESPA) to develop the methodology and lead the selection process for the Brazilian Corporate Sustainability Index (ISE). In addition, it also works closely with the FEBRABAN, the Brazilian Bank Federation, having coordinated and conducted the process for developing an Indicator Matrix for the Green Protocol, a set of guidelines and principles mutually committed between the Brazilian Bank Federation and the ministry of environment in 2009. Since 2007, it analyzes companies to be included in the Guia Exame de Sustentabilidade/Editora Abril. Besides these projects, it also works on the interface between climate and finance, performing a number of studies, including in Finanças Sustentáveis; “Privately-owned Banks and Climate Change” and “Brazilian State-owned Banks and Climate Change.” GVces is one of the conveners of the Natural Capital Declaration together with UNEP-FI and the Global Canopy Program (GCP), officially launched at Rio+20. Roberta Simonetti has a PhD in Physics, a Master in Sciences and an MBA in Sustainability Management, at FGV. Before joining FGV, she worked for nine years as Risk Manager and Quantitative Analyst for ING Group Brazil, and before that she taught physics at the high school level.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Roberta Simonetti: I adopt the ‘usual’ definition of “a strategy that combines the analysis of ESG criteria with the standard financial analysis, aiming at maximizing the return, for the investor and the whole society” with one single, but very important, remark: rather than maximize I prefer optimize.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Robert Simonetti: The reason for optimizing instead of maximizing returns is that, as science shows us, maximizing one variable necessarily implies minimizing all others or, at least, keeping them constant. The big problems we face today come from the literal comprehension of it: investors’ and shareholders’ return should be maximized. In a limited world of resources, of every kind, it means keeping the rest at their lowest level and exhausting the natural and social resources. It is paramount to consider the system boundary conditions; this is something still missing in all analysis.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Brazil to manage?
Roberta Simonetti: It depends on the company, indeed. Brazil has a very good environmental legal framework (notwithstanding the current movements to change it, stepping back and reducing the environmental protection). The critical issue is to comply with the law. But, listed companies are trying to reconcile their activities with the environment. Governance, especially for listed companies, is at an advanced stage. In my opinion, the social dimension is the most challenging one. We must improve our wealth distribution; ending poverty and reducing inequality should be our major concern as human race.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Brazilian companies to analyze?
Roberta Simonetti: In my view, social is the most challenging, second environment. Governance is okay, with disclosure and transparency advancing. Transparency and information disclosure on social and environment matters are crucial: setting goals and accounting for them. Recently, the Brazilian Sustainability Index (ISE) included a question to stimulate companies on disclosure, which is related to making the completed questionnaire public. There was no consensus, but 20% of the participants agreed and this is gaining momentum!
Emerging Markets ESG: How would you characterize the level of awareness about sustainability in the Brazilian financial sector? What has changed during the past five years, and in which direction is this issue heading?
Roberta Simonetti: There were very important movements. Four banks signed the Equator Principles, 60 institutions signed the PRI, four signed the recent launched PSI (Principle for Sustainable Insurance) and three endorsed the Natural Capital Declaration, a global statement demonstrating the commitment to work towards integrating natural capital criteria into financial products and services, launched at Rio+20. At the local level, there were also very important initiatives, such as the “Green Protocol”, a set of Principles signed by the Brazilian Banks Federations (FEBRABAN) and the Brazilian Environment Ministry in 2009. In the last two years, Brazilian banks worked together to build a set of indicators that would help them assess and monitor progress towards the protocol implementation. In July 2012, the Brazilian Central Bank announced a new regulation that requires all banks in Brazil to implement a social-environmental policy and to produce and publish a report on their social and environmental responsibility. Many steps and very good achievements, but still, a long way to go!