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 Magnus Furugard, President and Managing Director of GES Investment Services, Stockholm, Sweden.
Magnus Furugard was active in Greenpeace in the 1980s. In 1992 he and a partner established CaringCompany, which in 2003 changed its name to GES Investment Services. Today, GES Investment Services is Northern Europe’s leading analysis house for Responsible Investment adding proven value to €650 billion of investments worldwide. It covers large global universes of world indices, in order to serve mainstream investors’ needs. This is in line with its vision to become a leading global partner for Responsible Investment solutions. The philosophy behind GES is essentially that all international norms agreed upon between countries and their multilateral organizations, are of importance to companies operating in those countries and that they eventually will be judged in accordance with these norms by the authorities, the public and their representatives, NGOs, media, etc. Therefore these agreements serve as a reasonable foundation for evaluating companies.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Magnus Furugard: Using methodologies to invest Long Term, Sustainably and Responsibly. A company is more likely to have an overall good performance if it is performing well within ESG issues, because it is operated with less friction in the market when it is governed with a good supporting relationship to its clients, employees, investors and other stakeholders. It is a way of investing in efficiency in general and efficient management and leadership specifically.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Magnus Furugard: I think it is almost mainstream today, but it will take some time before all the large investment institutions have the right competence tttto integrate it in full scale. What is lacking in the traditional investment process is specific knowledge and skills about ESG issues, including the methodologies to handle them.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for emerging market companies to manage?
Magnus Furugard: How to answer that? It is like the choice of being tarred and feathered or just tarred. 😉 But the environmental issue has started to play an important role in many companies in several emerging market regions. Not at least climate change and water of course. The awareness is increasingly there and in some regions the commitment is strong although far from being implemented and reported everywhere. Corporate Governance issues can be a nightmare in some countries but in for example some Central and Eastern European states are relatively good. But in general social issues are probably among the most difficult. Because of politics, culture, history etc. Human Rights are often not respected. Companies and countries are sometimes very corrupt. Labor issues are difficult. Child labour is sometimes believed as an unavoidable necessity. But I am quite optimistic also here. For example, China motivates its companies to take social responsibility when they invest abroad and protect their brand names. Great news for investors!
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in emerging markets to analyze?
Magnus Furugard: Social, no doubt. Because they don´t understand the culture and therefore need local knowledge. They don´t see all the politics and power games going on beneath the surface. There are more double standards in the markets. And the standard in a company can be very different compared to its peer group.
Emerging Markets ESG: Which role or roles do emerging markets play in SRI?
Magnus Furugard: A very important and increasingly significant role. For financial reasons, emerging markets are naturally of large interest to responsible investors. But because of the special situation it requires more knowledge to take on the ESG issues.