Five Questions about SRI – Weekly Expert Interview with Professor Branko Ljutic, University of Business Academy, Novi Sad, Vojvodina, Serbia – January 18, 2013

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 Professor Branko Ljutic, Faculty of Economics and Engineering Management, University of Business Academy, Novi Sad, Vojvodina, Serbia.

The University of Business Academy was founded in 2000 as the first private university in the province of Vojvodina, Serbia. At the time of its formation, the University consisted of three faculties:  Faculty of Law, Faculty of Foreign Trade and Faculty of Management.  In 2009, the Faculty of Foreign Trade was transformed into the Faculty of Economics and Engineering Management (the Serbian acronym in FIMEK).  FIMEK’s mission is: the transfer of scientific and professional knowledge in the field of economics, industrial engineering and engineering management; developing and promoting science, through interdisciplinary work of scientists of various profiles; developing the next generation of scientists and professionals; and contributing to scientific knowledge and thought.  Professor Branko Ljutic is a tenured Professor at FIMEK, where he teaches accounting, managerial accounting, corporate risk management and audit.  Prior to joining FIMEK, he taught as tenured professor at Megatrend University in Belgrade (2007-2011) and the State University of Belgrade (2004-2007).  He has also taught at the Hankuk University of Foreign Studies, Seoul, South Korea; Union University, Belgrade, Serbia; and the Zagreb School of Economics & Management, Croatia. He is a member of the Serbian Economics Association, the Serbian Association of Agricultural Economists and the Serbian Association of Accountants and Auditors. He had a Ph.D. in economics (international finance and banking) from (1992) and a Master of Science in Economics (monetary economics and banking) (1986), both from the University of Belgrade.

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

Professor Branko Ljutic:  In an ex-socialist country like Serbia, even to mention anything that is closely related to a word like “social” is not welcomed. Serbia is a late and not yet successful transition economy, with an uncompleted process of transformation to the market economy. In this context, I would define SRI as investments which balance the interests of key stakeholders aver the long term.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Professor Branko Ljutic:  I would like to answer this question by focusing on the issue of corporate responsibility and corporate taxation.  Many multinational corporations (MNCs) have moved their headquarters to tax havens.  Conversely, a socially accountable and viable business would not consider tax avoidance or tax dodging.

In my opinion, it remains an open question how far we are from the moment when national tax authorities shall reform the tax system and begin to tax turnover on each local market, not corporate profits.

As I see it, this is an important SRI issue.  In the future, MNCs will face rising pressure on local markets from local business, non-governmental organizations (NGOs) and the political spectrum, all of which will insist on SRI.

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

Professor Branko Ljutic:  International Financial Reporting Standards (IFRS) are obligatory for listed companies in Serbia. However, as explained above, the transition to a market economy is still underway in Serbia.  The quality of financial reporting needs to be improved.  At present it does not deliver basic reliable information, and therefore there is not yet any solid foundation for ESG disclosure.

In the area of corporate governance, there are widespread misperceptions that scholarly articles, books, requirements of the New Law on Corporations dated February 1, 2012 and many Codes of Corporate Governance are the essence, without understanding that there are real stakeholders whose interests should be served and balanced. So, in front of us in Serbia, there is more than a long road from words to actions.

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

Professor Branko Ljutic:  At present, there is not much to analyze, since there is little if any awareness about the concept of ESG disclosure.  For example, at present the concept is not present in scholarly research.  The first PhD thesis on this topic is now in progress. We shall have some preliminary data on ESG reporting in mid-2013.  At present, the concepts of ESG and SRI are viewed with skepticism in Serbia, for a number of reasons.  The general public questions whether CSR awards are in fact green-washing.  Also, the general public is not convinced that the corporate sector in Serbia practices social responsibility, in terms of corporate governance, for example, or environmental protection.

Emerging Markets ESG:  You have studied and taught in Croatia, Germany, Serbia, South Korea and the US.  In our opinion, what is the greatest challenge for Serbian business today, as it integrates into the European and global economy and financial system?  Is SRI on the business agenda in Serbia today? 

Professor Branko Ljutic:  Let me start from the end of your question, and to state straightforwardly that SRI is not on the business agenda in Serbia today.  In fact, it is not even present in the air as some kind of unspoken concept.

If we define a country strategy as a program focused on a successful future, the question is how to define a goal, and in what timeframe. At present, the national economy is sluggish, reforms are halfheartedly implemented and, in my opinion, there is no clear vision of a national strategy.

Serbia lost more than two decades of growth.  The question of how Serbia shall (re)integrate into the European Union (EU), NATO, global and regional financial institutions and the overall global economy is an important one – for the present and near future as well as for the next decade and next two decades.