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 Anny Barlow, RepRisk Representative Asia Pacific, based in Vietnam.
RepRisk is the leading provider of dynamic business intelligence on Environmental, Social and Governance risks (ESG). RepRisk’s business intelligence allows companies and financial institutions to proactively assess ESG issues and monitor risk trends that may present financial and enterprise, reputational and compliance risks. The database currently includes over 25,000 companies, 6,000 projects, 4,500 NGOs and 4,000 governmental bodies. It is updated continuously and the number of entities is growing daily and remains unlimited. Anny Barlow has been a RepRisk Representative in the Asian Pacific region since May 2011. Previously she worked as a strategic consultant for Just Screening and Marketing Director at Oceanic Imaging Consultants, Inc. Anny’s background, with a Bachelor of Science Degree in Oceanography and a minor in Mathematics, have led her to focus on the environmental issues or ‘E’ factors that most interest sustainability analysts and investors, as well as why and how these measurements are integrated into analysis. The focus of her interest is deciphering if the correct indicators are being watched. Anny has a personal interest in obtaining global knowledge at cultural, interpersonal and social levels, leading her to explore many emerging market countries throughout South America and South East Asia over the past five years. Anny is currently based in Vietnam, where she works closely with a local socially responsible community organization, which uses sport to help develop individuals, KINN Pro Rider Team.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Anny Barlow: I find the term Socially Responsible Investment is used in numerous ways depending on the speaker, their background, and their audience. Often times it is misused and presented as a substitute for Sustainable Investing. There is a clear boundary between the two. Sustainable Investing pertains to a more clear-cut idea of what makes a business tick more efficiently, adding value in their long run. SRI focus includes the betterment of the community, directly or indirectly, as a whole so that individuals may thrive, and visa-versa.
Simply put, SRI refers to an investment strategy seeking direct financial return while promoting quality of life for all, directly and indirectly, affected by the corporate practices in focus.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Anny Barlow: The largest difference is in the type of information being used for each investment strategy, along with the weight of importance for each piece of information when determining value.
Historically, the mainstream investment approach has not looked at extra-financial data including E, S, and G factors. SRI’s focus includes analyzing the long-term impacts of these non-traditional points and utilizing this in investment strategy to influence positive growth for the company themselves and the communities involved.
Today, as investors examine the pitfalls that led to the current global financial state, this boundary is slowly blurring. There is an increasing global understanding that extra-financial information plays a vital role in value creation and such information should become part of mainstream practice.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Asian Pacific emerging markets to manage?
Anny Barlow: Wow, that is a big question. The Asian Pacific region itself is quite diverse when taking into account cultural attributes, resource availability, and government censorship.
At one end you have developed economies, like Australia and New Zealand, who hold sustainable initiatives in high regard. In more developed regions of Asia Pacific I would say the “G” is most challenging, as the E and S are more transparent.
At the other end of the spectrum you have many emerging markets where the “S” is most difficult to manage. Extreme poverty, lack of official records, and lack of resources lead to poor supervision of stakeholder needs. To complicate things further, cultural differences provide a barrier to understanding what these needs are as they are not always clearly understood.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Asian Pacific emerging market companies to analyze?
Anny Barlow: Transparency is the first step to collecting data in which to analyze, and this region is not known very well for its transparency.
It is fair to say this is not the case for the developed regions that, generally speaking, hold transparency in high regard. Here I would say the “E” is most challenging to analyze. Traditional financial analysts explore the available information working to fully understand what weight should be allotted to each data point in the “E” category plus determining if these are in fact the correct data points to be analyzing. More scientific analysis should be combined with the financial analysis for a more well-rounded understanding, inclusive of scientific perspective, of value for the “E” category.
Throughout Asia, many cultures have varying levels of the ingrained concept of “saving face” – they cannot make a mistake, and if they do they cannot ever admit it. This makes transparency a big problem. Here it is not the E, S, or G, but all 3 that become difficult to analyze, as receiving valuable information on these controversial themes can be quite a challenge.
Finally, there are many companies from developed nations operating in neighboring Asian countries where they can utilize the lack of transparency to their benefit. This further complicates full understanding of these companies which appear listed in developed countries yet have operations in other parts of the world.
Emerging Markets ESG: Language is a major challenge in emerging markets. How does RepRisk obtain material, timely and up-to-date information about emerging market companies on a global scale?
Anny Barlow: RepRisk’s methodology is different than most. The comprehensive database includes business intelligence on controversies happening throughout the world, in both developed and emerging markets, public and private entities alike. The research universe is unlimited as there are no particular lists of entities we follow. Instead we check thousands of third party sources for controversies on a daily basis, and any entity connected to in-scope negative news is analyzed and entered into the database.
These third party sources, ranging from major media outlets to NGOs, government agencies, newsletters and blogs, are monitored daily in 13 different languages. This allows for strong coverage in emerging markets. Currently our database holds about a 60/40 split of information on developed and emerging markets respectively. Languages we cover include Chinese, English, French, German, Japanese, Korean, Portuguese, Russian, Spanish and all Nordic languages.
RepRisk has analysts who speak a range of languages based around the globe. This helps us to stay abreast of current news, developments and published criticism.