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 Jonathan Porat-Lubensky, Head of Research, Greeneye, Jerusalem, Israel.
Greeneye has established a foothold as the leading provider of CSR research and SRI services in Israel. The company utilises its unique partnership with EIRIS in order to provide quality, reliable and independent CSR research to Israeli investors and to the customers of EIRIS’ and its global network of partners. Greeneye continuously strives to improve its research and to make it relevant to the Israeli investors needs and to the local market. It has five pillars of activities with the aim to be the “one stop shop” of responsible investment in Israel: (1) Provide ESG research on Israeli and Middle Eastern companies; (2) Work with the financial regulator on ESG relevant issues; (3) Provide consultancy to financial institutions in implementing tools for managing ESG issues (4) representing international initiatives in Israel, including the PRI and CDP; and (5) promotion of RI in Israel (including lecturing in academic courses and various forums; cooperation with NGO’s; and other activities). Jonathan Porat-Lubensky joined Greeneye in 2011 and serves as the company’s Head of Research. In this role, Jonathan performs analysis of Israeli and Middle Eastern companies for global investors and bespoke assessment projects on ESG issues for Israeli investors. Jonathan also serves as a consultant for the Israeli government and municipalities in various environmental-economics projects. Prior to joining Greeneye, Jonathan served in various academic positions including as an economics lecturer in the Hebrew University of Jerusalem and as a research and teaching assistant in the fields of economics, business strategy, entrepreneurship and marketing. Jonathan holds a BA in Economics and Business Management and an MBA (with honors), both from the Hebrew University of Jerusalem.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Jonathan Porat-Lubensky: I always go back to my freshman year as an Economics student. We were taught about the rational individuals, the ’Homo Economicus’. These are individuals that act in an attempt to maximize their own subjective utility, based on their own subjective preferences. These are market actors that use all available information and make decisions while considering all of the relevant, known, costs and benefits.
For the rational individual described above (or for someone who wishes to invest act more rationally), the utility of a financial product includes not only the yields from the investment. It includes other aspects that might be more difficult to identify, such as the costs created by financing corporate activity that might risk the individual’s health or damage the fabric of society or environment in a way that might create other costs – including increased taxes to fix the damages.
So basically, I see Responsible Investment as Rational Investment.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Jonathan Porat-Lubensky: A lot has already been said about the great contribution of SRI analysis to risk assessments. However, I also see SRI as a direction for growth for mainstream investment. There are key factors that every financial institution should maintain, including professional reputation, personal treatment and an aspiration to provide clients with optimal returns. But strategically, it seems rather difficult to base one’s branding strategy on factors that everyone else has, or at least, should have. However, an element such as ethical values might be the foundation for prominent brand value.
A simple strategic decision such as “using the savings of clients to make a better world for them,” opens up a world of new segmentation possibilities, new products and new issues for communication and networking beyond plain reports on financial figures.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Israel and the Middle East to manage?
Jonathan Porat-Lubensky: The Middle East is still a very religious area. As a result, some issues might create challenges when dealing with various religious groups. In some cases, it might only require the adjustment of some products to religious requirements – for example, a food producer should note that pork is forbidden both in Islam and Judaism. In cases that are more complicated, some religious rules and the practices they inspire might contradict basic principles concerning human rights, specifically women rights. This is relevant to certain regions and groups in the Middle East and some companies already found themselves in difficult circumstances where they have to compromise their equality policies to follow a business opportunity.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in companies in Israel and the Middle East to analyze?
Jonathan Porat-Lubensky: The oil and gas sector creates very big challenges, across all of these themes. It goes beyond the impact on the environment, climate change and biodiversity. This sector also faces challenges of managing employee health and safety risks, of dependency on government permits and of managing the relationships with communities that are adjacent to extraction, refining and storage facilities. The transition to a resource extraction based economy might have other macro-economic effects on other sectors, and this should also be accounted for by long term investors.
In this context, Israel is entering this sector only now – mostly due to the availability of new technologies allowing deep water mining and shale oil production. As a result, it is facing some of the relevant ESG challenges for the first time. I’m not sure what role did responsible investors decide to play in this case.
Additionally, a sector that might be very interesting for socially responsible investors is the Israeli high-technology sector. The companies in this sector are usually known for offering good working conditions and usually have lower direct impact on the environment. However, these companies do face some ESG challenges: they are sometimes criticized for not giving back to the society and community in which they grew; many of these companies also outsource production and, as a result, might face supply chain management challenges.
Emerging Markets ESG: Unfortunately, armed conflict continues in Israel and the Middle East. In Bahrain, Syria and other countries, the Arab Spring is unfolding violently. How does ESG analysis fit into the business equation in such an environment?
Jonathan Porat-Lubensky: Things here do become political and controversial very quickly…
Things in Syria indeed escalated dramatically and tragically. However, in most Middle Eastern regions people only lead their everyday life. There is life beyond the big political issues and most of the people in the Middle East still work, shop and do their chores, even in times of turmoil. So any “smaller” ESG issue is still very relevant and should be treated in the same way it is treated anywhere else, for the well-being of everyone.