Five Questions about SRI – Weekly Expert Interview with Priya Bala-Miller, Director, International Programs, Shareholder Association for Research and Education (SHARE), Vancouver, Canada – August 10, 2012

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 Priya Bala-Miller, Director, International Program, Shareholder Association for Research and Education (SHARE), Vancouver, Canada.

The Global Unions’ Committee on Workers’ Capital (CWC) is an international labour union network for dialogue and action on the responsible investment of workers’ capital. The CWC Secretariat is hosted at the Shareholder Association for Research and Education (SHARE), a leader in responsible investment services for institutional investors.  In her capacity as International Program Director at SHARE, Priya Bala Miller executes strategic planning, coordination and program development for the CWC.  Prior to joining SHARE, Priya worked with UN agencies and international NGOs as an advocate for corporate social responsibility and sustainability. She has authored numerous policy reports on these themes, and published peer-reviewed papers in Consumer Policy Review and the Journal of Sustainable Finance and Investment.  Currently, Priya is a Liu Scholar and doctoral student with the Department of Political Science at the University of British Columbia. Her research, funded by the Social Sciences and Humanities Research Council (SSHRC), focuses on understanding the impacts of shareholder engagement in conflict-affected areas and emerging markets.

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

Priya Bala-MillerI will start by noting that a significant portion of global shareholdings is held by institutional investors, whose investments are intended to provide retirement security for workers. Within the CWC we refer to these assets as “workers’ capital,” since workers are indirect owners and key stakeholders for global publicly traded companies through their pension investments.

Coming from a workers’ capital view then, I would define responsible investment (RI) as an approach that minimizes the adverse human and environmental impacts associated with corporate activity.  RI also encourages high corporate governance standards and appropriate oversight at the firm level to minimize these adverse effects, while aiming to deliver sustainable financial benefits owed to workers in the long-term.

SRI is one strand within the broader RI, where reflections on values and ethics tend to receive considerable attention within investment decision-making and management processes.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment?  

Priya Bala-MillerThe responsible investment community has played a key role in challenging a number of assumptions held by mainstream investors. For instance, RI advocates who stress the importance of long-term investment horizons have poised a credible alternative to the mainstream focus on short-termism that seems to have encouraged unprecedented and ultimately unsustainable levels of risk-taking in our capital markets, as demonstrated by the financial crisis.

Similarly, as academic work on RI continues to flourish, conventional thinking around positive correlations between diversification and profit are being questioned, and investors are taking note. For instance, those investors who subscribe to the benefits of an RI approach are starting to see that they can discriminate in favor of companies that have a stronger capacity to manage and minimize social and environmental risks and possess a culture of good corporate governance, without necessarily paying a “diversification penalty” in financial terms.

Finally, we also see that RI approaches are “opening up” the investment decision making process, such that civil society voices are becoming more involved and prominent, albeit to a modest degree.

Despite mounting a challenge to mainstream thinking in the manner I’ve just outlined, in my personal view, core arguments supporting the RI paradigm are dominantly framed as part of good risk management – references to the impacts of capital on social justice and equity remain peripheral at best.

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

Priya Bala-MillerI am not sure it is possible to make broad generalizations across countries, sectors and companies about which issue is most challenging. ESG challenges tend to be global in scope, but are manifested differently across these dimensions. For instance our Investing in Decent Work briefing paper series which links performance on labour standards and investment risk highlights that poor health and safety performance is a global problem, cutting across most industry sectors and countries.

Will the conceptual distinction between environmental, social and governance issues continue to be tenable? I am not sure…For instance, discussions around safety conditions at coal mines have implications for labour relations (in terms of how safety culture is promoted on the ground, the kinds of penalties levied for safety errors, as well as compensation for workers injured or permanently disabled due to work-related hazards). Likewise, poor safety records may be cited as an additional factor for the need to diversify energy production away from coal mining; the need for corporate governance mechanisms for risk management and safety oversight in coal mining may be relevant factors to consider. Overall, addressing complex global issues such as sustainable land and water use, climate change, and decent work from an investment perspective will require us, within limits, to be able to flex across the ‘ESG’ paradigm.

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

Priya Bala-MillerWithin the CWC network it has been observed that along with their growth prospects and assert diversification, we see a parallel increase in RI in emerging markets. However this trend is mostly driven by non-domestic investors, and emerging market institutional investors in particular could play a much bigger role going forward. Although these issues are all challenging and interconnected, in general, social and environmental issues are not widely considered and company transparency on sustainability issues is quite low.  Labour and human rights tend to be integrated as ‘secondary’ concerns rather than being front and center in investor dialogues with emerging market companies. The family-owned or private conglomerates corporate governance forms that dominate in emerging markets also makes these companies less amenable to shareholder pressure. Overall, a level-playing field across markets in terms of robust regulatory frameworks for integrating ESG factors, as well as high standards of corporate disclosure on these issues would go a long way in mitigating these challenges.

Emerging Markets ESG:  Which ESG issues in emerging markets are of particular interest to labor unions and labor pension funds?

Priya Bala-MillerWhile we are interested in advancing the core labour standards more broadly, there are a few themes that we are focusing on via the CWC.

First, we want to expand the discussion of labour rights in emerging markets beyond the limiting frame of supply chain management. Focusing on the supply chain frame, to some extent, has resulted in less attention being accorded to certain labour rights such as freedom of association and collective bargaining, and to poor conditions for workers in direct employment relationships with companies operating in emerging markets.

Second, we are gravely concerned about the rise of precarious working conditions (seasonal, part-time and temporary jobs) which are especially prevalent in dangerous and ‘dirty’ jobs in emerging markets. One of our current projects is examining the various forms of investment risk associated with the employment of precarious labour by companies associated with mega-sporting events such as the Olympics or World Cup Soccer, particularly when we note that many of these events have just been or will be held in countries like Russia, South Africa, Brazil and Qatar.

Finally, we are interested in a productive dialogue with pension funds on their contribution to financing a “just transition” for workers to a greener economy, particularly in terms of job creation. Green investments in emerging markets could play a major role in economic and social development, if structured appropriately.