Responsible Investment in Emerging Markets: Priorities for Action

"Engaged investors... create long-term value for companies and wider society" - Rory Sullivan.

“Engaged investors… create long-term value for companies and wider society.” – Rory Sullivan

In recent years, investors have argued that “responsible investment” allows investors to maximise the financial and social benefits of their activities, and, simultaneously, to mitigate the negative impacts of their investments. As yet, however, little has been written in the practitioner or in the academic literature about the responsibilities of investors in emerging markets, about the practicalities of implementing responsible investment in emerging markets, or about the outcomes (financial and social) that result.

The latest issue of the Journal of Corporate Citizenship addresses this gap in the literature by presenting a series of major articles that analyse the implications, for investors and for society, of investors seeking to take a more responsible approach to their investments. The articles highlight the potential contribution of foreign investment to economic development and to wider society (e.g. through skills development, local economic development, local employment). They also explain that foreign investment is not unambiguously positive for developing countries, with many such investments being criticised for their negative impacts on local communities and the local environment, for the lack of local benefits and for their volatility.

For investors, and investor bodies such as the Principles for Responsible Investment, four important conclusions emerge. The first is that investors must pay close attention to core governance issues such as accounting, ownership structures and investors’ rights. These are critical to ensuring that investors protect their financial interests and are able to deliver the investment returns that they have promised to their clients or their beneficiaries.

The second is that there is real evidence that active, engaged investors can improve companies’ management of health, safety, environmental and community impacts, thereby creating substantial long-term value for the companies and for wider society.

The third is that responsible investment is not solely about the protection of investors’ financial interests, nor it is solely about the influence that investors have on the companies in which they are invested (important though both of these are). The articles in this issue of the Journal of Corporate Citizenship open up wider questions around the implications of foreign investment on the stability and long-term success of emerging markets. As we reflect on the causes and consequences of the global financial crisis, we need to be aware that the inflows of foreign investment into emerging markets may have the perverse effect of increasing these countries’ vulnerability to future financial shocks.

The fourth is that investors are only one actor. The debate around the contribution that responsible investment can make to poverty alleviation and to economic development should not be seen as undermining the critical role of national, regional and local governments in creating the conditions that enable foreign investment to make a real contribution to improving the lives of the citizens of these countries.

By Rory Sullivan.

JCC 48 coverDr Rory Sullivan (Senior Research Fellow, University of Leeds) is the editor, with Daphne Bilouri, of Issue 48 of the Journal of Corporate Citizenship, which focuses on the issue of responsible investment in emerging markets. Dr Sullivan is an internationally recognised expert on responsible investment. He is the General Editor of the Greenleaf Responsible Investment Book Series, and has written widely on responsible investment, development and related issues. His books include Valuing Corporate Responsibility: How Do Investors Really Use Corporate Responsibility Information? (Greenleaf, 2011) and Responsible Investment (editor with Craig Mackenzie, Greenleaf, 2006).

The Journal of Corporate Citizenship (JCC) is a multidisciplinary, peer-reviewed journal that focuses explicitly on integrating theory about corporate citizenship with management practice. The journal provides a forum in which the tensions and practical realities of making corporate citizenship real are addressed in a reader-friendly, yet conceptually and empirically rigorous format. For more information on JCC please visit our website.

Greenleaf Publishing launched after the first Rio Earth Summit in 1992 and is the leading independent publisher of sustainability and social responsibility, with representation in the USA and India, as well as publishing offices in the UK. In spring 2013 we launched the Sustainable Organization Library (SOL) with partners GSE Research. Containing almost 400 books and journal issues, SOL gives instant access to leading international authors, commentators and researchers on sustainability, best practice and social responsibility.

Image © epSos

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