New Sector Report Helps Investors Assess Corporate Responsibility in Asia

New Sector Report Helps Investors Assess Corporate Responsibility in Asia

The Association of Sustainable and Responsible Investment in Asia (ASrIA) has released a new report offering investors guidance on assessing environmental, social, and governance factors in Asian businesses.

The report Taking Stock, funded by the International Finance Corporation, the private sector arm of the World Bank Group, addresses new areas for value creation and risk into analysis across eight sectors: automobiles; banking; metals and mining; oil, gas, and petrochemicals; power; pulp, paper, and timber; supply chain; and technology. It highlights key themes for sustainability investments in Asia, as well as current disclosure norms and opportunities for global investors.

"Over the past decade, global and Asian investors have become more aware of the impact of environmental, social, and governance variables on their investments," said Melissa Brown, ASrIA's executive director. "Whether it is a question of watching companies struggle with persistent environmental challenges or evaluating the impact of labor disputes, investors in Asian equities must increasingly look at a range of global sustainability issues to assess the long-term value of companies."

"Investors need a framework for assessing the growing and complex environmental, social, and governance issues that face companies in Asia today. This report begins the process of creating such a framework," said IFC's director of environmental and social development, Rachel Kyte. "ASrIA is uniquely placed to develop this report in Asia, and these studies are the latest example of our cooperation with ASrIA and of the innovation in sustainable financial markets that we seek to spur."

The report was launched in the United States at the Spring Meeting of the Social Investment Forum's International Working Group in Washington, D.C.

Key Themes

Taking Stock represents a first step toward filling a very large analytical gap in the Asian investment literature. This gap is striking given that Asia is the fastest growing source of sustainability risks globally, due to its rapid growth in economic activity and in associated environmental, social, and governance (ESG) impacts. Indeed, developed market companies increasingly frame their discussion of these risks in terms of their activity in Asia. Despite the growing pressure to evaluate ESG issues in developed markets, Asian investors have had comparatively few benchmarks for rating performance because of more subdued enforcement of regulatory standards and less participation from minority shareholders.

The report highlights three important key, cross-cutting risks affecting the Asian equity investment outlook generally:
  • Focused analysis of ESG risks is hampered by limited disclosure

  • Government ownership and control of many large listed Asian companies is a critically important variable in ESG performance

  • Globalization and market development are amplifying ESG trends linked to China and India
The report presents country, company, and market information as well as case studies that support the following investment themes:
  • Environmental issues appear to dominate the Asian investment picture, but medium-term incentives for change are emerging on a case-by-case basis, not systematically

  • Better governance standards are a key facilitator for improving ESG performance

  • Rising public expectations are a growing force for regulatory change
Taken together, the sector studies important questions about how to shape investment strategies, reflecting the range of risks and opportunities that sustainability analysis of Asian equities can highlight. This is particularly relevant for large cap investors versus those who favor innovative, small companies. It is also relevant for investors with strong country allocation disciplines.

Taking Stock is available for free download online. In addition to the full report, it is possible to download an introduction to the issues, a summary document, and individual sector reports.