Socially Responsible Investment Makes for Good ROI

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Courtesy of GLOBE Foundation

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 reflect on what SRI in emerging markets means to practitioners;
  • To collect a catalogue of examples of SRI in practice in emerging markets;
  • To raise awareness about SRI in emerging markets; and
  • To enable SRI practitioners in emerging markets to network with peers around the world.

This week’s interview is with John D. Wiebe, President and CEO, GLOBE Group, Vancouver, British Columbia, Canada.

The GLOBE Group is a Vancouver-based organization that was established in the early 90’s to carry forward a mandate to promote the business case for sustainability. The “GLOBE” name has become a recognized brand, both in Canada and internationally, with respect to the “business of the environment” – due in large part to the GLOBE Series of Conferences and Trade Fair Exhibitions held in Vancouver every two years since 1990.

For more than 20 years the GLOBE Series has carried forward the mandate to promote the business case for sustainable development. Now North America’s largest and longest running forum on the business of the environment, GLOBE provides not only a meeting ground for global leaders to gather and address the world’s most pressing environment and energy challenges, but a marketplace teeming with technologies to help accelerate a global green economy. The next GLOBE Series event is GLOBE 2014 taking place in Vancouver Canada March 26-28, 2014.

Dr. John D. Wiebe is President and CEO, GLOBE Group. and one of the founders of the Globe series. John has managed projects and advised governments and corporations in all parts of the world for the past 30 years. Until May of 2005 he was also the President & CEO of the Asia Pacific Foundation of Canada and until April of 2007 was Chairman of the Board of the Canadian Education Centre Network and Global Schools Inc. He has been a senior executive with the Government of Canada and served on the National Roundtable on Environment and the Economy where he chaired the Capital Markets taskforce.

He currently sits on the Boards of West Mountain Capital Ltd., GreenAngel Energy Ltd.; EcoCanada; the Green Table Network and is a past Chair of the Vancouver Economic Development Commission and a past Director of the International Centre for Sustainable Cities, the McCrae Institute, Desert Gold Corporation, Boltons Capital Corp. Tonbridge Power Corp. and a member of the Advisory Board of the Simon Fraser University Business School. John established the GLOBE Foundation in 1993. He was recognized in 2011 as one of Canada’s Clean16, one of 16 individuals who have done the most to advance the cause of sustainability and clean capitalism in Canada.

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

John D. Wiebe: In broad terms socially responsible investing, which is often referred to as green or ethical investing, focuses on strategies that consider both the financial return and the social good that arises from the investment. Within their portfolios socially responsible investors typically would have companies that have in place policies that address social justice or ethical issues.

For example, socially responsible investors will look for corporate practices that promote environmental stewardship; or that advocate consumer protection; or that take into account human rights issues in a company’s operations. But socially responsible investing can be much broader in its application, extending even to approaches designed to influence or govern how asset managers go about managing their portfolios.

Emerging Markets ESG: What distinguishes SRI from mainstream investment?

John D. Wiebe: Socially responsible investing or SRI involves a more proactive screening process that goes beyond the normal parameters of business which tend to focus primarily on the bottom line returns such as capital appreciation, dividends, or interest earnings. SRI uses an additional lens employing a broader metric for investment screening that we might broadly call the ‘return on sustainability’.

As well, SRI implies a more active engagement on the part of the shareholder in the governance of the target investments to ensure that the investments align well with their own social or environmental values.

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

John D. Wiebe: What we typically find in emerging market situations are great disparities in terms of wealth distribution and overall social wellbeing. In these markets all three themes are difficult but I would say local governance is the most difficult for companies to manage because their levers of power extend only as far as their own operations or host communities. This is why global initiatives like the PRI or even a country initiative like Canada’s CSR initiative on mining are so important as they bring a national perspective to bear on these issues.

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

John D. Wiebe: What we typically find in developing market situations is that the basic information upon which to base investment decisions may be incomplete or lacking. An investment analyst will look at many factors before making a decision to invest or not. In the North American and European marketplace, there is a great deal of information readily available on demographics, environmental conditions, incomes and other measures of social wellbeing that can be used to guide investment strategies for various funds and accounts. That is one of the reasons why SRI is expanding so rapidly in these markets.

For companies in emerging markets such information may not be readily available and the sustainability conscious investor may not feel completely comfortable making potentially ‘risky’ investments where there are too many unknowns. This often necessitates the placement of informed analysts within the ranks of the target companies to guide and/or report of progress relative to various SRI goals.

What it boils down to is reducing the risk factors associated with investment decisions. In these markets, there is no ‘one size fits all’ approach that is applicable. Investors have to judge each case on its merits paying careful attention on the issue of profitability on the one hand and social accountability on the other.

Emerging Markets ESG: Do emerging markets play a part in Canadian consciousness about the business case for sustainability? If so, how?

John D. Wiebe: Very much so! Many Canadian companies in the extractive industries sectors have made significant investments in developing markets and they are very conscious of the need to act responsibly with respect to environmental and human rights issues, particularly in jurisdictions where policies and practices in these areas have been lacking.

The Canadian government has taken significant steps to codify best practices to guide companies operating in these situations and we have instituted a special agency designed to assist governments in developing markets to build up their capacities to manage their own natural resources. Earning the social license to operate has become a major concern for Canadian companies both at home and abroad, and the realization that this is not an easy task has been something of an awakening for some corporate managers.

We at the GLOBE Foundation are mounting sessions in our next conference on the business of the environment taking place in Vancouver in March 2014 to address this very issue.

In other sectors, Canadian companies are becoming increasingly mindful of the need to address working conditions that clearly do not meet our standards for environmental and safety considerations. Some companies have declared their intent to reform their production facilities in Bangladesh in the wake of tragedies that took place there recently.

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