25th May 2012

Following a recent trip to Asia, where I met a diverse range of companies, it became very apparent how low down the priority list ESG (Environment, Social and Governance) was for most senior management. At one meeting, I was told that no-one had ever asked any questions on ESG, and that investors only focused on margins, markets, profit and share price. ESG in Asia can be best described as nascent.

From an analyst's perspective, researching companies in the small and mid-cap space in Asia can be very frustrating. There is often a lack of disclosure on very basic ESG data, and attempts to find more information are met with a wall of silence or a healthy dose of scepticism. The corporate culture in Asia has not embraced ESG, despite the increasing globalisation of financial markets. The paradigm shift – ESG moving from a cost centre to a profit centre – has not taken place in Asia as yet. Management often cite the cost of developing ESG initiatives as one of the reasons why they have held back on undertaking a concerted effort.

Despite the lack of uptake on ESG, it is easy to assume that ESG doesn't matter to senior managers in Asian companies. Most are more than aware of global ESG initiatives, but have limited resources to develop their ESG credentials. The lack of disclosure should not be confused with having nothing to disclose. In many instances, Asian companies are serving international markets, and have been forced to adopt international standards. There is a clear need for global investors to engage more directly on ESG issues.

Fortunately, there are companies which are emerging as early adopters of ESG initiatives, which have embraced the clear link between P/L and ESG. This augurs well for ESG in Asia, in the very long-term. Multi-national companies have also helped to raise the ESG benchmark by insisting that local supply partners adopt the appropriate regulations across a variety of fields – environment, labour and business relations. To assist with the journey, Investors have to develop a platform for engagement with companies that encompasses both financial and ESG considerations.

Read more from Ketan Patel here.


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1 thought on “ESG”

  1. Anonymous says:

    This is a very interesting post. The RPI is no longer designated as a national statistic by the ONS, so I do wonder if this simple rule should still be based on aggregates calculated using the RPI as a deflator. Should not the RPIJ be used as a deflator instead? I doubt that the real monetary aggregates or the real share price indexes would show very different movements, but it would seem to be a sounder methodology. There is really no question that the RPIJ provides a better measure of consumer price change than the RPI.
    Andrew Baldwin

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