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 Robert L. Schiffer, Managing Director, Mekong Renewable Resources Fund (MRRF).
Mekong Renewable Resources Fund (MRRF) is a regional fund that will invest in renewable resources related companies and projects focused on renewable energy generation and energy efficiency, sustainable forestry and plantations, and environmental services in the lower Mekong region comprising of Vietnam, Cambodia, and Laos. The target size is US$150 million with the aim to channel private sector and development capital into critically-needed environmental and renewable resource investments. The fund’s investment strategy is platform strategy, co-investing and impact investing. Target sectors are renewable energy & energy efficiency, sustainable forestry & plantations and environmental services. Robert L. Schiffer is Managing Director of the Mekong Renewable Resources Fund (MRRF). He has distinguished credentials that range from Wall Street to appointments under two White House Administrations and a New York Governor. He has broad experience in financial markets, diplomacy, crisis management, negotiations and trade policy. Mr. Schiffer previously served as Executive Director and CEO of the US Vietnam Trade Council. At The Carey Group LLC, he provides advice to corporate and non-profit clients in international trade, finance and project development. Mr. Schiffer is one of Washington’s leading experts on Vietnamese commercial and political issues. His long involvement in Vietnam included an appointment from 1998 to 2001 as Senior Advisor to US Ambassador to Vietnam Pete Peterson. As the Ambassador’s top political envoy on business matters, he developed new strategies to promote US-Vietnam business and finance, labor standards, and international trade. He is credited for his pivotal role in the successful negotiations of the US-Vietnam Bilateral Trade Agreement and the OPIC-Vietnam Bilateral Investment Agreement. Before his service in Vietnam, Mr. Schiffer was Vice President for Investment Development at the Overseas Private Investment Corporation (OPIC). During nearly two years, he managed the agency’s product development, business and market development, and public affairs strategies. He led efforts to open business investment in Eastern and Central Europe, South Korea and Vietnam and was a key strategist with Congress, business and the labor community on OPIC’s congressional reauthorization. Mr. Schiffer began his Federal service in 1993 in the Clinton White House where he worked as a Special Assistant in the Office of Management and Budget on the National Performance Review. From 1993-1997 Mr. Schiffer held senior positions at the United States Information Agency (USIA), directing agency activities in Russia, the NIS, South Africa, China and Vietnam. Mr. Schiffer’s Wall Street experience from 1981-1992 included ranking positions with Drexel Burnham (Managing Director of the East Coast Public Finance Group), L.F Rothschild (Managing Director), A.G. Becker (Senior Vice President – firm later known as Becker Paribas) and Bear Stearns and Company (Vice President). He also was a founding partner of a boutique private financial firm, Schiffer and Lacey. His accomplishments included the first private credit enhancement for a non-profit institution and development of the distressed hospital program (which tapped new capital for hospitals with low credit ratings), as well as being senior manager for the financing of Columbia Presbyterian and Mount Sinai Hospitals. Mr. Schiffer’s civic activities have included serving as Chairman of the New York State Real Estate Advisory Board to the Governor, Director and Treasurer of the Board of the Dance Theatre of Harlem and Chairman of the Committee for Housing New York and the US Vietnam Trade Council. Today he sits on the boards of the US Vietnam Trade Council; The Alliance for Safe Children in Bangkok, Thailand that focuses on global child injury prevention; the Vietnam Veterans of America Foundation; and the John F. Kennedy Institute for Worker Education. Mr. Schiffer received his BA at the University of Tennessee and attended the Harvard University Kennedy School of Government Program for Senior Managers in Government.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Robert L. Schiffer: Socially responsible investments should be grounded in the investor’s values. The investor values what industries and sectors will have a positive social impact on the region. This means that some sectors are decided off-limit, such as the arms industry or certain energy sources. ESG is a set of measurements to review the impact of the investment, and SRI is the underlying value-based strategy that we chose our targeted investment pipeline from. We are also committed to making sure there are programs to support the local community in our investments that would include supporting microlending.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Robert L. Schiffer: SRI requires more in-depth knowledge of the project or company than traditional investing. In addition to the typical due diligence of the firm’s financial health and growth projections, the investor needs to confidently vouch for a range of other extra-financial aspects, from how the workers are treated to its ecological footprint. Mainstream investment sometimes flushes out information that is not directly essential to the return on investment; the SR-Investor must have accurate information on how the investment is affecting the community and the region affected. This is also the core strength of SRI, and limited partners are increasingly interested in finding managers that have this holistic view of the platform companies.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Cambodia, Laos and Vietnam to manage?
Robert L. Schiffer: Assessing the ESG impact of any investment in an emerging market requires a great deal of experience and insight in the complex setting. Doing business in the West, or even China, is relatively linear. In the Mekong region, you need local expertise to navigate the unique challenges. In a non-linear business environment, the personal relationships with competent business partners are crucial to achieve your ESG goals. Fund managers must have close relationship to reliable corporate management.
The most challenging ESG-theme depends on what type of investment we are dealing with. Forestry is a lucrative sector in the entire region, given the growing demand for timber in China. However, if the project is not responsibly executed, investors might find themselves involved in business that is actually long-term detrimental to the area, such as the unsustainable logging industry in Cambodia that has received a lot of attention recently. However, sustainable forestry and plantations in impoverished rural areas have a positive social impact on the local community, providing jobs where there is only subsistence farming, and are environmentally sound. The MRRF is looking to develop sustainable forestry in areas that have been barren for years due to previous illegal logging, thus replanting and restoring the land. These socially responsible investments are also more financially lucrative in the long-term, as they do not destroy the resource extracted.
In this case, to achieve your social and environmental goals, you need good corporate governance. The fund manager will have a constant dialogue with management about the potential ESG-impact of decisions throughout the life of the investment.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in companies in Cambodia, Laos and Vietnam to analyze?
Robert L. Schiffer: Many investments, especially in emerging markets, may appear positive on face value from an ESG standpoint, but do actually have significant extra-financial downsides. The extra-financial impact can be difficult to quantify and compare to the upside. The investor needs, again, in-depth local knowledge, as well as a knack for finding good compromises.
An example of this is hydropower. Hydropower is often heralded as a strong alternative to the Mekong region’s dependency on fossil fuels. While hydropower radically reduces greenhouse gas emissions, the construction often requires large populations to be relocated and the dams are a significant intrusion on the fragile ecosystem. There are few black and white decisions when it comes to ESG investment and the investor must assess the pros and cons and find a commercially and environmentally viable solution. For instance, the MRRF only invests in small hydropower developments, which are built directly on the rivers with no dam constructions or dislocation of people, thereby removing the extra-financial downside while maintaining the positive environmental impact. While some extra-financial themes are easy to quantify, like CO2 emissions, most aspects are difficult to model, and you can overcome that with input from the people on the ground and experienced investment officers.
Emerging Markets ESG: How does the Mekong Renewable Resources Fund (MRRF) define the triple bottom line? Which impacts are anticipated/expected from the MRRF’s investments?
Robert L. Schiffer: If ESG is the lens through which we vet potential future investments, the triple bottom line (TBLI) is the final measurement of the success of the finished investment. We believe that ecological, social and financial success is closely connected. A successful forestry project should be profitable for many planting cycles; a sustainable model for hydropower plants will be highly replicable; a socially sustainable waste management development will enable more PPP-contracts with the local government.
The MRRF is specifically focusing on women’s empowerment in our assessment of the investment’s corporate governance. We believe that this as an often neglected aspect of ESG-investments that deserves more attention.
Our investors are interested in a healthy long-term return on investment as well as a full cost accounting including the “people, planet, profit” impact. The MRRF anticipates and expects our individual investments will off-set CO2 emissions, improve water supply, give employment opportunities to impoverished communities, while providing over 20% internal return on investment.