Five Questions about SRI – Weekly Expert Interview with Tomasz Karol Wisniewski, Chairman, Warsaw Stock Exchange Index Committee, Warsaw, Poland – May 3, 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 Tomasz Karol Wisniewski, Chairman, Warsaw Stock Exchange Index Committee, Warsaw Stock Exchange, Warsaw, Poland.

For several years now the Warsaw Stock Exchange has been among the most dynamic stock markets in Europe, attracting regional issuers and global investors. In Central and Eastern Europe it is the undisputed leader in terms of market growth indicators, such as capitalization, trading volumes and number of IPOs. Investors have over 850 issuers to choose from and despite turbulences on the global financial markets, the Warsaw Stock Exchange attracts new companies. According to IPO Watch Report of PwC, it has a leading position by the value and number of IPOs and of IPOs in Europe.  The WSE creates attractive conditions for both domestic and foreign companies looking for growth capital; as a result, the exchange lists over 50 foreign issuers from over 20 countries, with the largest group originating from Ukraine and the Czech Republic. One of the decisive factors for them is a solid and diversified investor base, including foreign investors whose share in trading volumes reaches almost 50 percent.  The Warsaw Stock Exchange owes its dynamic development to modern infrastructure typical for a developed market, reliable regulations, a high level of market participant activity and varied product range aimed at investors of different risk appetites. The WSE operates a regulated market of shares and derivative instruments and the alternative stock market NewConnect for growing companies. The exchange is also developing Catalyst, a market for issuers of corporate and municipal bonds, as well as the commodities market.  A symbolic moment, and crowning achievement of nearly twenty years of dynamic expansion, was WSE’s own IPO. The aim of the Warsaw Stock Exchange as a public company is to systematically strengthen its international position through expanding its product range for investors and issuers, attracting new companies and intermediaries, as well as to improve market organization, technology and legal regulations. The priorities for the WSE are trading liquidity, security and effectiveness.  In 2013, in order to increase its competitiveness, the exchange implemented a new transaction system bought from NYSE Technologies, the Universal Trading Platform (UTP), which will be more efficient and will feature expanded functionality, enabling further market growth.  Since September 2003, Tomasz Karol Wisniewski is Chairman of the Warsaw Stock Exchange Index Committee; previously he was Secretary of the Committee. He coordinated the launching of new indices: WIG20short, WIG20lev (the first strategy indices), WIG-Poland, WIG-Ukraine (the first national indices), WIGdiv (the first dividend index) and TBSPI (the first official Polish government bond index). He was responsible for the in initial implementation and is now responsible for the current management and development of the first domestic index of socially responsible companies – RESPECT Index.  Since the beginning of his professional career, he has been associated with the capital market and the Warsaw Stock Exchange.  He was a participant in many training courses and workshops covering the national and international scope of markets as well as financial instruments. He is the author of educational texts as well as analytical and scientific papers published in Polish domestic newspapers.

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

Tomasz WisniewskiTomasz Karol Wisniewski:  Socially responsible investment refers to the strategy of capital allocation which is aimed at maximizing both financial return and social good. When making investment decisions, investors consider environment, social and governance aspects and give preference to the companies that cherish values such as sustainable development, environmental protection, consumer rights protection, human rights or diversity.

Emerging Markets ESG:  What distinguishes SRI from mainstream investment? 

Tomasz Karol Wisniewski:  The essence of social responsible investing is the adoption of a wider perspective by investors during the selection of companies or financial products such as exchange indices and keeping the balance between returns and long-term development prospects. Socially responsible investment is a long-term investment and takes into consideration not only financial indicators which are the inherent elements of mainstream investments but also non-financial data.

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

Tomasz Karol Wisniewski:  Corporate governance is highly regulated by law and we, as the Exchange, additionally create high standards and promote best practices of listed companies in this area since 2002. So I do think that environmental and social themes are most challenging for managers.

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

Tomasz Karol Wisniewski:  Socially responsible investment is at the very early stage in Poland. Unfortunately, only a few percent of Polish companies report professionally on extra-financial themes, so investors do not have very easy access to the information. Nevertheless, the research we conduct for almost three years among institutional investors in Poland now proves that the importance of the non-financial aspects is growing and being taken into consideration by over 50% of them. 65% of institutional investors representing mutual and pension funds, brokerage houses and asset managers agree that companies which have a CSR strategy and report on it on a regular basis may be more attractive investment opportunities. Thus, SRI in Poland portends well. Answering the question, governance is the number one area being reported by companies in Poland according to capital market regulations. The areas which require further improvement are environmental and social themes.

Emerging Markets ESG:  The Warsaw Stock Exchange launched the RESPECT Index in 2009.  Would you please briefly describe the RESPECT Index and explain how it has developed during the past four years.

Tomasz Karol Wisniewski:  The current concept of the RESPECT Index project is a follow-up of Warsaw Stock Exchange (WSE) measures taken in 2009 that led to the creation of the first CSR index in Central and Eastern Europe. The analysis we conducted in 2009 ended up with the announcement of the first composition of the Index.

As with the first edition of the Index launched in 2009, the ongoing project, aims at identification of companies managed in a responsible and sustainable manner, but additionally it puts strong emphasis on investment attractiveness of companies that are characterized, among other criteria, by reporting quality, level of investor relations and/or information governance. Thanks to the incorporation of the liquidity aspect into the eligibility criteria the RESPECT Index, similar to other exchange indices, represents a real reference tool for professional investors. The participating companies are screened by the WSE and the Association of Listed Companies (SEG) in a three-stage process of review of all these factors and are additionally audited by the project partner since the first edition: Deloitte.

The RESPECT Index is an income-based index, which implies that during its calculation the proceeds from dividend and allotment certificates are taken into consideration. The share of each company in the index portfolio is determined according to the same rules as for other stock exchange indices, taking into account free-floating shares, subject to a cap of the weight of the largest companies at 25%; the number of participating companies is less than 20 and the weight of smaller companies is capped at 10%.

The return rate on the RESPECT Index was 45% from its first publication on November 19, 2009 until the end of April 2013.