Best Managed Companies 2016: ESG to the fore in Asia corporate governance
Winners of Euromoney’s latest survey of the best managed companies in Asia needed to demonstrate environmental and social credentials.
Telecommunications firms performed strongly in Euromoney’s 2016 best managed companies in Asia survey. The overall winner for Asia was China Telecom.
Other Hong Kong-listed businesses to feature highly were Far East Consortium, which won in the real-estate category, and Hong Kong Broadband Network, which won the computer and communications equipment category.
Euromoney’s annual best managed companies ranking is based on a survey of market analysts at leading banks and research institutes around the world. Polling took place from early June to early August.
New for this year, we asked for respondents’ views on the region’s best companies for corporate social responsibility. The overall winner of this category in Asia was again a telecoms firm: China Mobile.
Momentum in corporate governance in Asia has shifted from general reporting towards ESG (environmental, social and governance). “There haven’t been dramatic changes in financial reporting rules or corporate governance reporting per se, but there have been significant changes in ESG sustainability reporting,” says Jamie Allen, secretary general of the Asian Corporate Governance Association, and co-author of the biennial CG Watch benchmark report published with CLSA. “There is much more focus on material risk from ESG factors, whether it’s pollution or water or social issues. Investors are taking it much more seriously.”
Steadily, Asia’s leading stock exchanges are incorporating sustainability into their reporting requirements. Both the Singapore Exchange (SGX) and Hong Kong Exchanges and Clearing have upgraded their existing sustainability reporting guides from being voluntary to a ‘comply or explain’ obligation.
The move is perhaps a consequence of another trend: increasing shareholder activity in Asia. “The investor side is getting more interested in pushing companies to make changes,” Allen says. After the global financial crisis, the UK produced a stewardship code encouraging investors to be more active as owners of the companies in which they invest, and increasingly the same approach is being attempted in Asia: first with the launch of a new code in Japan, then Malaysia, followed by Hong Kong and Taiwan this year. Singapore will be next, followed by Thailand.
“The big thing driving this is regulators saying to institutions: you need to step up your ownership role and to help improve corporate governance,” Allen says. “Asia is very top-down, in that it is regulator-driven, both in terms of rules and enforcement. What has taken a long time to develop in Asia is the investor component.”
Supporting Allen’s point, a new study in September argued that the biggest impediment to ESG gaining further traction is the fact that there is not a clear requirement to do so. “Fiduciary duty is still the biggest barrier to ESG integration,” says Fiona Reynolds, managing director of the Principles for Responsible Investment, which produced the study alongside the UNEP Finance Initiative and the Generation Foundation. “In many Asian markets, responsible investment remains a nascent concept.”
But the report speaks of “compelling national interest reasons” for policymakers in Asia to incorporate ESG factors into investment practice, ranging from better air quality to the reduction of inequality and the attraction of international capital.
The report has specific recommendations from one country to another: in China, for example, it is argued that pension funds should take account of ESG issues, and that the Ministry of Human Resources and Social Security should implement a stewardship code for the investment industry. In India and Hong Kong, it would like to see national regulatory clarification.