This interview was taken by Geoffrey on October 28, 2011. You can find the original article here.
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 Martin Neureiter, CEO, The CSR Company, Vienna, Austria.
The CSR Company is a leading corporate social responsibility (CSR) consulting firm committed to add value to the businesses of its clients by embedding the principles of CSR into their core strategies, policies, programs and actions. It postulates that consistent responsibility-driven behavior of companies and governments generates business wealth and profits for employees, shareholders and stakeholders at large. Martin Neureiter was born in Salzburg in 1961. He studied law in Salzburg, Vienna and at the London School of Economics and Political Science. Since October 2004 he is owner and CEO of The CSR Company. He is Task Group Leader within the ISO (International Standards Organization) for the writing of the ISO 26000 standard on Social Responsibility. He is author of Corporate Social Responsibility – Leitlinien und Konzepte im Management der gesellschaftlichen Verantwortung von Unternehmen, published in 2004, which was the first German language book on the issue, and Handbuch Corporate Citizenship, published in 2011. He conducts a Masters Program in CSR at the University of Vienna, lectures at the St. Gallen Management Institute (Switzerland) and coaches at the CEO level.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Martin Neureiter: Investments into companies that take the impacts that they have on their clients, their employees, their environment, their neighbours, etc. seriously and do something about it. Different perhaps from classical SRI, I believe a tobacco company, a weapons producer or a gambling establishment can also act socially responsible, because it is much more important HOW they do their business rather than what they produce. If that were the case, only plastic bottle recycling companies could do CSR.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Martin Neureiter: SRI investments should look at the risks that lie within the company that you want to invest in. There are so many companies claiming to be socially responsible but have their poison garbage in the back yard. So SRI investments should evaluate the full risks of the company, its financial performance, its social performance and its environmental performance; only then will the investor get a complete picture of the company, enabling it to make a decision. That is what I would expect from SRI.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for emerging market companies to manage?
Martin Neureiter: Management needs to understand the need for sustainable management, including the triple bottom line. This includes understanding that dealing with the environment or with social issues is not an add-on, but actually makes a successful business. This understanding is very often not there, from the experience that I have. It is all about making a quick buck without regards to what will be in a few years, as probably the management will have moved on to an even better paid job. This model is based on continuous growth of GDP – if that fails, then this concept is doomed to create a lot of bankrupt businesses. In turn, this is not good for investors, which closes the circle and shows the need for taking all aspects of the business into account.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in emerging markets to analyze?
Martin Neureiter: In emerging markets it is not so much the laws regulating any of the above-mentioned topics, but rather their implementation. There are good governance rules, environmental and social laws but their level of implementation is rather low. So an investor should not only look at if an anti-corruption policy exits, but also at how it is implemented, what actions are taken, how people are trained, etc. This applies as well to environment and social issues. Sometimes the possibility of saving a dollar here or there by evading the law seems very tempting, as controls are not that tough, and if corruption can be used as a tool for evading the law, then the business is not sustainable.
Emerging Markets ESG: The CSR Company is a global consultancy, with a presence in Australia, Asia and Europe as well as partners in North America and South America. Would you please briefly describe the primary drivers for SRI on each of these continents, comparing and contrasting them?
Martin Neureiter: In Asia CSR concentrates very much on the externalities, on what the companies supply to the communities, etc. So it is very much about “what the company does with its profits rather than how it made its profits.” SRI as a tool is also too much focused on the reputation of the company rather than on its real performance. The so-called “hard” facts are still only the financial indicators; there is very little data about the two other dimensions.
The Americas are very different. North America is a market for SRI, but still on a scale way below classical venture capital or investment funds and tools. Latin America is ahead in this respect, even if in total numbers the market is of course smaller. But the topic is there and investors look into social responsibility as a criterium for investment. Here especially the US has still a way to catch-up, but it is not only the fault of the investors, it is also the lack of investment possibilities, because the SR topic is still not grassroot business but rather the exotic outsider (with well-known exceptions to the rule like GE Green Business, etc.)
Europe is probably on the front line, being pushed by more vocal customers and governments to invest in businesses that are green or socially active. The big sovereign funds like the one from Norway or almost all the big pension funds in Austria have clear rules only to invest in SR projects and nothing else, never mind the return on investment (ROI). They are not suicidal; they believe that the long-term ROI is higher when investing in sustainable projects rather than in short-term profits.
One word at the end – one important thing that has so far been missing in SRI is clear criteria defining what is a social investment and what is not. The new standard ISO 26000 provides exactly this missing tool and thus we believe it will greatly foster SRI in the future.