But according to experts in the field, besides helping society at large, CSR can carry far greater benefits for the companies involved, as those that assist in solving social or environmental problems win more loyal customers, gain greater political influence and, of course, access to cheaper financial resources.

According to Ervin Szűcs, CEO of political and communication consulting firm Weber Shandwick/GJW Kft, Hungarian companies can benefit directly from their CSR performance in terms of their corporate reputation. He cited a recent survey of how various groups assess companies, which he said found that 80% of journalists, 78% of parliamentary representatives, and 50% of stock market analysts and financial commentators take into consideration a company’s CSR.

Setting its sights on a potential niche market, OTP Fund Management Rt is currently considering launching an investment fund that would invest in listed companies in Central and Eastern Europe that fulfill certain socially responsible criteria. The idea is to cater to private and institutional investors all over the world that wish to enter into socially responsible investments (SRIs) in emerging markets.

“We are currently in the process of carrying out a feasibility study for the project,” said Natasha Landell-Mills, an SRI advisor responsible for the project. “We will make a decision by this fall.”

According to Landell-Mills, very little work has been done so far on SRIs in the CEE region. But as such investments become mainstream in developed countries, she said fund managers are looking for ways to diversify their portfolios and offer higher returns.

“CEE countries may offer an opportunity for higher returns without compromising ethical investment standards,” Landell-Mills said.

While acknowledging the gradually growing importance of SRIs on Western investment markets, local experts at international asset management firms have expressed doubts over the concept’s regional viability.

“We consider SRIs a very special form of investment. There has been continuous demand for such products from Western investors, but the rate of growth has been slow,” said Krisztina Kozma, vice president and CEO of Credit Suisse Asset Management Hungary Rt.

Globally, Credit Suisse Asset Management has two investment funds with special ethical investment codes. One is the Credit Suisse Fellowship Fund, launched in the U.K. in 1986, which currently manages Ã??76.3 million. The other is the Luxembourg-based Credit Suisse Sustainability Fund, set up in 1990, which has total net assets of €42.27 million.

Increasingly responsible

A report issued last year by the International Finance Corporation (IFC) found that SRIs have expanded greatly in developed countries over three decades, and now account for a significant part of overall market capitalization.

“In the U.S., the U.K. and several other developed countries, the pace of expansion has accelerated in recent years, and there is evidence suggesting the trend is likely to continue,” the report says.

In 30 years, the IFC adds, SRIs have grown into a $2.7 trillion worldwide industry, consisting of more than 760 retail funds and many institutional investors.

“In the U.S. alone, assets held in the screened portfolio form of SRI – in portfolios that filter investments according to a range of social or environmental criteria – amount to more than $2 trillion,” the report says. “U.S. assets controlled by shareholder advocates – a second form of SRI, in which share ownership is used to advocate socially or environmentally responsible business practice – amount to almost $900 billion.”

The IFC notes that SRI remains conÃ??centrated in developed countries.

“SRI held in emerging market assets, primarily in large capital stocks, currently stands at an estimated $2.7 billion, or only about 0.1% of all SRI worldwide,” the report says. “Of this, about $1.5 billion is held by developed country investors, and about $1.2 billion by emerging market investors.”

Even so, Landell-Mills said she sees great potential in emerging markets.

“We will offer a safe option in high-growth markets by screening all listed companies in the CEE region for SRI,” she said.

Landell-Mills said SRI standards to be used in the region will be set by an international advisory panel, in cooperation with several investment market experts from the region.

“We must not force West European standards on CEE markets. We should set standards at levels that are achievable, but higher than local standards,” she explained.

While Landell-Mills did not rule out the possibility of local investors putting money into a regional SRI fund, she said she expects Western investors to provide the bulk of investments in the initial phase.

“Whether OTP Fund Management eventually launches its fund depends on the level of interest expressed by potential investors,” Landell-Mills explained. “The research we have done so far indicates that mainly institutional investors are interested in such a fund.”

Regional prospects

Gyula Fatér, director of Budapest Fund Management Rt, expressed skepticism about the prospects of a socially responsible investment fund in the region.

“It might be difficult for any fund to build a portfolio of companies that fulfils requirements of sustainable development and social responsibility, because the Hungarian stock market – and even Central European regional stock markets – consists of rather few companies that can build an optimally diverse portfolio,” said Fatér. “If there are other selection criteria besides financial performance – namely environmental, social and ethical considerations – the pool of stocks to buy will be rather shallow.”

Fatér stressed that the number of stocks available in such a fund depends on the management policy of the fund manager.

Among the methods SRI fund managers employ, so-called negative screening involves excluding companies operating in certain sectors, or those that do not meet certain criteria.

Positive screening, on the other hand, might involve support for companies that stand out in reducing negative environmental impact. In positive screening, the so-called “best in class” approach is generally used, in which only the top environmental and social performers in a certain industry qualify as investment targets.

As far as Hungary is concerned, Kálmán Mizsei, assistant administrator and director of the Regional Bureau for Europe and the CIS, which operates within the United Nations Development Program (UNDP), said he believes the corporate sector here is ready to adopt the principles of corporate social responsibility.

“The concept is quite weak in this country, but there are positive signs,” Mizsei said in an interview with the BBJ late last year. “Some Hungarian firms are already committed to pursuing corporate social responsibility.”

Mizsei last year took part in a roundtable discussion in Budapest with executives of leading Hungarian companies and government officials about the possibility of introducing the UN’s Global Compact in Hungary.

A direct initiative of UN Secretary-General Kofi Annan, the compact was launched in 2000, and has over 1,500 participating firms in 70 countries. It challenges individual corporations to advance certain values within their sphere of influence, based on principles regarding human rights, labor, the environment and corruption. Participation is strictly voluntary for all parties in the corporate and public sectors.


Responsible corporate behavior is becoming an increasingly important criterion by which businesses are judged – be it by the man on the street, or the head of an investment fund with extremely deep pockets.

On the one side, investment funds seek new opportunities to make healthy returns without compromising ethical standards. And on the other, national or regional social organizations and NGOs compete for corporate generosity for the long-term economic and social benefit of the communities in which they operate.

In the more developed West, corporate social responsibility has paid off handsomely in customer and employee loyalty, greater political influence and, crucially, access to financial resources. But though investors elsewhere have reaped rewards through well-placed socially responsible investments, here in Hungary many remain unconvinced about the viability of such activity.

Many local companies and multinationals present here make significant social contributions. But many others remain tight-fisted, or argue that bad experiences in the past prevent them from being as generous as they would like to be.


Cheap loans for SRI projects

Hungarian companies involved in the manuÃ??facture and distribution of energy-saving light sources – and in the longer term, firms that aim to restructure their production processes in order to utilize as little raw material, and generate as little waste, as possible – may soon be able to apply for bank loans at favorable rates of interest.

The cheap loans will be made available via guarantees offered to commercial banks by the International Finance Corporation (IFC), the subsidiary of the World Bank group that provides funding for private enterprise. The IFC will thus shoulder the often unforeseeable risks involved in various environmental investments, explained Shilpa Patel, manager of the IFC’s environmental financing group. This will in turn open up new business opportunities for the banks themselves, she noted.

Hungarian banks already have experience in financing environmental projects, as the IFC has for years supported investments improving the energy efficiency of the Hungarian private sector, with some $120 million loans already facilitated via IFC guarantees.

“The World Bank has now classified Hungary as a ‘mature’ economy, and thus does not intend to make further investments in the country,” stressed Russell Sturm, manager responsible for the IFC’s Central European programs. “Opportunities to use the currently available guarantees may expand, however, by adopting the goals of successful programs carried out in other countries.”

Sturm cited a household energy-efficient lighting project in Poland and the reordering of the supply chain for a Macedonian steel manufacturer as examples of recent successful projects in the region.