Monday, May 14, 2007

Emerging markets: Held to the same standards?

One of the big topics in the GRI network is whether or not the Sustainability Reporting Guidelines as they stand today are applicable - and should be expected for use - by companies and other organizations in emerging markets.

Some say that the bar should be lowered and the standards made 'easier' for companies as a way to entice them to just get started, especially in regimes where the laws for environmental and social conditions are not as stringent as they are in OECD countries and therefore companies have a longer way to go to get up to par with competitors elsewhere.

But in a recent conversation with Mervyn E King, the new chair of GRI's board, an expert in corporate governance, and a native of South Africa, I heard a different story.

King says attracting investment – including foreign investment – in the private sector is a key to energizing economies in some of the poorest nations worldwide. This will only happen if there is both real and perceived adherence to best practice in business management and corporate governance since investors must feel confident.

A study in 2000 published by McKinsey & Co in their Investor Opinion Survey illustrates the point. The survey found that 84% of the more than 200 institutional investors questioned are willing to pay a premium for shares in a well governed company, over one considered poorly governed but with a comparable financial record. The actual premium varied from country to country, for example, a well governed company in the UK would see investors willing to pay 18% more for shares than a poorly governed company. But importantly, the premium went even higher in emerging markets. For example, investors would be willing to pay 27% more for a well governed company in Indonesia or Venezuela versus what they would pay for a poorly governed company with similar financial performance in those same countries.

From his perspective one of the drivers behind the use of international standards, including the GRI Guidelines, is to raise the standards of business management and governance quality worldwide, thereby strengthening the economy and society as a whole. One way a company can prove it is well governed and worthy of investment is to be transparent about its risks and opportunities related to sustainability.

1 comment:

Stephen said...

Hello Alyson

I have recently come across this blog while I was researching the GRI Framework and I must say that I am quite impressed. You bring an excellent perspective to the discussion of a wide variety of CSR issues. I hope to contribute more comments in the future as I continue to follow your posts.

It terms of Emerging markets being held to the same standard, I completely agree. I would find it counter-productive to promote relaxed standards for emerging markets, meanwhile promoting the idea of embracing progressive CSR principles as a way of creating both social and economic value.

As you mentioned in your April 18th post (Globalization’s offspring) the evidence shows that successful multinationals in emerging markets often have records of better labour and environmental practices . I would propose that a large portion of these companies' success could be attributed to the fact that they adhere to more stringent business practices (anti-corruption, quality control labour practices, environmental protection, etc.) than they are legally required to (or is the norm for those countries). In other words, I would argue that progressive business practices make sense from an economic viewpoint, and that is exclusive to governmental regulations.

It is my hope that businesses will be drive change in emerging markets, as unfortunately governments can often be quite slow (or corrupt).

I will stay tuned.

Stephen Albinati