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SUSTAINABILITY IN ASIAESG REPORTING UNCOVEREDSEPTEMBER 2010
The ASR™ is a ESG benchmarking tool that was developed from a collaboration betweenResponsible Research and CSR Asia. Resp...
Contents                                                                                                                  ...
ASR™ 2010          Key Findings          The 2010 ASR™ highlights the current leadership position of corporate Korea on ES...
ASR™ METHODOLOGY          ASR™ Categories                                                                                 ...
China                           Korea          ASR™ COUNTRY AND SECTOR                                                    ...
TELECOM 2% UTILITIES 3%CHINA                                                                                              ...
UTILITIES 6%INDIA                                         ASR™ BY CATEGORY                                              (R...
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
Responsible research   csr introduction
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Responsible research csr introduction

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  1. 1. SUSTAINABILITY IN ASIAESG REPORTING UNCOVEREDSEPTEMBER 2010
  2. 2. The ASR™ is a ESG benchmarking tool that was developed from a collaboration betweenResponsible Research and CSR Asia. Responsible Research Pte Ltd, an independent ESG researchcompany based in Singapore, exclusively owns the rights to the methodology and data. If youwould like to know more about the ASR™, provide feedback or support, please contact us asinfo@asiansr.com.Using the ASR™INVESTORSInvestor partners receive access to indicator data as annual subscribers to Responsible Research– a suite of ESG research that includes monthly sector reports on critical ESG themes. Currentpartners include several well respected global asset owners and managers. For examples of ourmonthly sector and thematic work please visit www.responsibleresearch.com. Investors interested ACKNOWLEDGEMENTSin subscribing, bespoke portfolio benchmarking services, indexes and consulting advice pleasecontact info@asiansr.com. Authors | Alex Read-Brown, BA, Florent Bardy, MA, Rebecca Lewis, MBA,COMPANIESIf you are a company already included on the ASR™ and would like to access your full indicator Editors | Rumi Morales, MBA, Lucy Carmody, MA, Erin Lyon, BAbreakdown this can be provided for a fee of US$350. If you are a company not currently includedon the ASR™ but would like to know your current rating, this can also be provided. Sector analysis Research Manager | Dr Elena Chua, PhDcan be also be provided for companies wishing to know how their competitors are performing onsustainability disclosure. The cost would depend on the number of companies per sector and how We also gratefully acknowledge the hard work and enthusiasm of the following responsiblemany companies are new to the ASR™. investment analysts, without whom this report would have been impossible. BenedictOnce your rating is established, CSR Asia has associates in seven locations to assist you in defining Choong, Fong Yee Chan, Harry Cheng, Jayson Huang Chung-en, Olivia Han, Paul Gu, Petera strategy for your future sustainability reporting, management and target setting. Please contact Lee Shun-Ta, Sang Jing Byun, Reese Kim, Laurent Vaslier, Sophie Normand, Gauri Nafrey,elyon@csr-asia.com for more information. Sandra Arijon Pineyro, Sun Xi.OTHER The following experts have, as ever, provided invaluable support :Media, government, NGOs and other categories of customers please contact info@asiansr.com. Melissa Brown, Sumi Dharnarajan, Melissa Ong.
  3. 3. Contents Progress in Sustainability Reporting ABOUT The Asian Sustainability Rating™ 3 ABOUT The Asian Sustainability Rating™ The Asian Sustainability Rating™ (ASR™) is an environment, social and governance (ESG) benchmarking tool developed by Responsible Research KEY FINDINGS 4 and CSR Asia. Launched in 2009, ASR™ examines the publicly available information of the leading listed companies in ten Asian countries* and First Social Report for Ben & Jerry’s (US) by a commissioned provides investors, companies and other stakeholders with a view of “social auditor”. ASR™ METHODOLOGY 6 strategic sustainability of these companies. Launch of the KLD400 (Ex Domini 400 Social Index), first benchmark index constructed using ESG factors. The Global Financial Crisis of 2008-9 has brought about an increased emphasis on risk management, corporate governance, remuneration First ever ‘sustainable development report’ published by COUNTRY & SECTOR OVERVIEW 8 systems and the transparency of financial data. ESG data is increasingly Shell Canada. seen as an important tool for investors who need look beyond traditional financial information to gain more understanding of investment risks and COUNTRY REPORTS opportunities. With the assumption that thorough, transparent reporting provides a proxy for responsible management of business risk, strong ESG China 10 disclosure provides assurance in a company’s greater ability to achieve Hong Kong 11 well-rounded growth over the long term while managing the ongoing challenges and opportunities in their operations. The Body Shop Social Statement introduces the concept of India 12 socially and environmentally responsible business practices The data in ASR™ 2010 can be used by responsible investors to benchmark to the UK High Street. Indonesia 13 portfolios and add a sustainability dimension to investment decision- Malaysia 14 making and engagement practices. Companies and their stakeholders can The non-profit CERES (US) started a “Global Reporting also use the tool to monitor their progress on sustainability and to review Philippines 15 Initiative”. ESG management and disclosures from business partners and competitors. Singapore 16 Individual company or peer analysis can be provided for companies wishing Launch of the DJ Sustainability Indexes tracking to know how their peers are performing on sustainability disclosure. sustainability performance worldwide. South Korea 17 Investors, NGOs and the media are also invited to access indicator data. Taiwan 18 Corporate sustainability is an evolving process (see our ESG Reporting Launch of the Carbon Disclosure Project. Thailand 19 timeline) and ASR™ is not an end point. Rather it is an important, analytical contribution to the development of ESG reporting within Asia. Brazilian bank Unibanco the first sell-side brokerage in the world to offer SRI research. The ASR™ methodology is based on a set of 100 proprietary sustainability SECTOR REPORTS indicators, split into four ASR™ categories; General, Environment, Social The GRI Institution was publicly inaugurated at the United Nations in New York City. Banking 20 and Governance, which cover disclosure on the main elements of ESG risk. We believe all public companies should be addressing each of these Real Estate 22 important factors through disclosure and realistic target setting irrespective of their sector. In theory, any company can aspire to and achieve a 100 Telecoms 24 percent rating on ASR™ within a few years of monitoring and reporting on Utilities 26 these fundamental ESG issues. The UN invites institutional investors to develop the Principles for Responsible Investment (PRI). The 2010 ASR™ universe comprises 542 companies and includes the largest listed corporate entities based on free float market capitalisation The IFC applies Policy and Performance Standards on Social and Environmental Sustainability. across ten countries. All companies are scored across the same ESG factors Bursa Malaysia launched a CSR Framework to support based on publicly available information only. In order that the end results implementation and reporting. are as unbiased as possible, there is no engagement or questionnaire of International the companies in the methodology. Financial Shanghai Stock Exchange guidelines introduced. Crisis UNCTAD 2009 Sustainable Stock Exchanges Dialogue, NY. Currently disclosure is reviewed on an annual basis but as companies improve on data collection and communications on sustainability issues, the ASR™ will be reviewed more frequently to swiftly reflect improvements Launch of Reputex Hang Seng Index (HK) . in company sustainability disclosure. In the near term, the ASR™ team will Singapore Exchange (“SGX”) guidance on ESG Reporting. begin the third phase of development, which will include engagement UNCTAD Sustainable Stock Exchange 2010 Dialogue, with companies to understand the publicly given data, enabling the ASR™ Xiamen. Responsible Research presents ‘Obstacles and to shift from a disclosure-only rating to one that also looks at strategic Opportunities’ for promoting ESG reporting. performance. Going forward a platform is planned for companies to Launch of Asian Sustainability Rating™. Asia’s first upload their sustainability disclosure and comment on their rating, targets independent ESG benchmarking tool. and potential for improvement. * MSCI AC (All Country) Asia ex Japan2 Asian Sustainability Rating™ Asian Sustainability Rating™ 3
  4. 4. ASR™ 2010 Key Findings The 2010 ASR™ highlights the current leadership position of corporate Korea on ESG Environment reporting, with Chinese companies found to be the poorest disclosers. Across the twelve sectors included in our analysis, the highest scoring sector is telecoms and the lowest, Many companies disclose an environmental policy but just one-third of companies surprisingly, is healthcare. However, the healthcare sector admittedly includes a relatively provide a comprehensive policy backed by appropriate energy, water and waste initiatives. small universe of companies that is heavily weighted towards China and India. Additionally, there were a noticeable number of companies for whom ‘light bulb and washroom’ initiatives were the only types of environmental disclosure. In general, companies in Asia scored better on Governance indicators compared to the Environment or Social categories, with at least some level of disclosure even amongst the Around 35 percent of our universe reported allocating resources to adopting or developing laggards. For much of our universe, Governance was the only sustainability reporting of any energy efficient technologies. Whether economic rationale, ease of adoption or government kind and even that was mostly due to regulation or stock exchange listing requirements. stimulus is driving this high level of engagement, it is certainly encouraging to see initiatives This highlights the vital role regulators and exchanges play in setting minimum thresholds in place. The next step is to translate these efforts into an understanding of energy usage, for reporting, and the importance of continuously engaging them to help improve corporate enhanced reporting and target setting for improvements. ESG reporting in Asia. Around three quarters of our universe have some form of sustainability disclosure. However, Social few companies in our universe are willing to provide a direct named contact for ESG queries from stakeholders. Normally, when a contact is given, it is often someone in the public Virtually all companies in our universe disclose some form of community investment relations or corporate communications office, revealing a commonly held belief in Asia that and charitable donations, as this has been a common feature of philanthropic company sustainability reporting is more of a marketing tool to prove a company’s ‘green’ credentials. leadership in Asia for years. Fewer companies however report involvement in ‘long term’ or ‘community relevant’ initiatives and disclosure on monitoring or follow-up is rare. Even We found that although many companies in our universe were signatories to the UN Global more infrequent is any analysis or clear examination of the impact of these community Compact but this was not strongly indicative of ESG disclosure. Indeed more than half of our initiatives. top-scoring companies were not signatories. Rather Global Compact signatory status within our sample indicated that a company would not fall below a certain level of disclosure. Due As with environmental issues, many companies have stated policies on social issues, yet to this marginal utility we did not include it as a sustainability indicator in the ASR™. reporting on targets, enforcement and implementation seems limited or absent. This was particularly true of indicators relating to employees and customers. A notable exception to this was reporting on Health and Safety indicators, especially within sectors with large workforces. LANGUAGE OF REPORTING Integration of sustainability into supply chains is limited largely to companies grouped in Whilst agreeing that non-English language disclosure does not equal poor or non- the consumer staples and IT sectors, with several notable exceptions, including Singaporean material reporting, it is often of limited value to global responsible investors. We found Real Estate companies. several examples in our universe where fairly strong ESG reporting was delivered in the local language only, meaning that the company’s good work would be largely lost on its international stakeholders. For companies wanting access to the US$20 trillion pool of Governance ‘responsibly managed’ capital globally, an English translation of ESG reports should be provided. This would improve ASR™ performance dramatically as the methodology gives Within our universe it is extremely rare for a company to have a tenure limit for independent only half points for local language reporting on indicators. executive directors (INEDs). They are often limited to a term of several years but can be appointed and elected ad infinitum. This raises questions about the independence of these directors, as it was not uncommon for us to find INEDs having served a decade or more in this fashion, meaning that the benefit to shareholders of their independence is surely reduced. Less than a quarter of the companies in our universe disclose a clear whistleblower or complaints channel and only slightly more than a third disclose an anti-bribery and corruption policy. This raises obvious concerns about governance, risk management and accountability in Asia.4 Asian Sustainability Rating™ Asian Sustainability Rating™ 5
  5. 5. ASR™ METHODOLOGY ASR™ Categories ASR™ Scoring and Analysis The ASR™ research methodology uses a proprietary set of 100 indicators covering all areas of All companies were scored by responsible investment analysts based in Singapore, South Korea, sustainability. These indicators are grouped into four ASR™ categories – General, Environment, Social China and Hong Kong. This approach was undertaken to access the relevant language skills and local and Governance – and were carefully selected in order to represent the most realistic assessment of understanding of the markets in which the companies operate. achievable best sustainability practices for Asian companies in 2010. In theory, any company could All ASR™ assessments are based on publicly available information including, but not limited to, annual aspire to and achieve a 100 percent rating on ASR™ within a few years of monitoring and reporting on reports, sustainability reports, corporate communications, press releases and web site information. these fundamental ESG issues. Example indicators across the four ASR™ categories are shown below. The emphasis on the use of publicly available information rather than company interviews is based on the assumption that reporting is a proxy of performance. Although we acknowledge that it is challenging to report on all activities being undertaken, we believe it is vital that companies prioritise the communication of their internal practices in order to better inform investment decisions. To provide additional depth to the research, a number of steps were taken when conducting the ASR™ scoring and analysis: 1. Scoring for each indicator is binary and a full point can only be achieved if submissions are in English reflecting the fact that this is the language which companies must use if they are to successfully communicate with the global investment community. However, ASR™ aims to give a more accurate reflection of the strategic sustainability of companies in Asia by giving a half point score if the data is only in the local language with no English language translation. 2. Listed subsidiaries are treated as separate investable entities from holding companies. As such, unless explicitly stated by the subsidiary, scores for policies (e.g. human rights, supply chains) are not based on publicly disclosed information of the holding company. Information declared by the holding company as an aggregate (e.g. energy used, water consumption) is not considered sufficient for developing an understanding of the subsidiary’s sustainability practices. 3. Additional analysis of the results identified ten indicators as having no strong positive correlation with material sustainability disclosure, across both countries and sectors. Whilst these are important starting points for companies, the scores for these indicators were classed as ‘low impact’ and were removed from the final ASR™ scoring. ASR™ recognises the need to focus the assessment of sustainability reporting on the most material issues for a sector. In light of this, sector specific ASR™ indicators were added to the high impact sectors of Banking, Real Estate, Telecoms and Utilities. For example, the Real Estate sector specific indicators include whether a company has undertaken an internationally certified ‘green’ or sustainable building development. Upcoming research will further extend this detailed analysis to other high impact sectors in Asia, including, Oil and Gas, Materials and Mining sectors. ASR™ Company Selection A universe of 542 companies were selected to be scored using the ASR™ methodology. These companies are grouped into 12 sectors, following the GICS classification system, with selected exceptions in order that a company’s sector accurately reflected their business operations in Asia: Banking | Consumer Discretionary | Consumer Staples | Energy | Health Care | Industrials | IT | Materials | Other Financials | Real Estate | Telecom | Utilities. These sectors were selected as they are viewed as not only being high impact sectors, not only in terms of ESG issues but also in terms of free float market capitalisation. To ensure that the ASR™ results represent the largest and most important companies domiciled and listed in Asia, a three-step approach was undertaken: Step 1: An initial shortlist of companies was extracted from a universe of 3,000 publicly listed companies in Asia, ex Japan. The top 500 companies based on their free float weighted market capitalisation were selected for inclusion. Step 2: This initial list was subsequently examined and cross-referenced with the Fortune 500 Global 2009 list to ensure that key Asian companies were not excluded. Step 3: To ensure that the universe provided a detailed view of sustainability performance across Asia and opportunities for country comparison, ASR™ extended the research to ensure coverage of the largest 20 companies in each of the ten Asian markets, by free float market capitalisation.6 Asian Sustainability Rating™ Asian Sustainability Rating™ 7
  6. 6. China Korea ASR™ COUNTRY AND SECTOR COMPANIES ANALYSED: 208 COMPANIES ANALYSED: 57 COUNTRY ASR™: 20% COUNTRY ASR™: 44% COUNTRY RANKING: 10th COUNTRY RANKING: 1st OVERVIEW Best performance in Top performer overall, with Governance category, where it a leadership position in still only ranks 8/10. Environmental category. In order to promote improved sustainability disclosure, we have included a high-level analysis of the results in all ten countries and on four selected sectors in Asia. Banking | Real Estate | Telecoms | Utilities Definitions: COUNTRY ASR™: Average score from all companies COUNTRY RANKING: Ranking amongst 10 countries in ASR™ universe Taiwan COMPANIES ANALYSED: 50 COUNTRY ASR™: 34% COUNTRY RANKING: 7th Lowest ASR™ score in the Governance category. ASR™ Sector Hong Kong COMPANIES ANALYSED: 63 Reports COUNTRY ASR™: 33% COUNTRY RANKING: 8th India Ranks 4th in Governance Some ESG issues will be more material in certain category COMPANIES ANALYSED: 56 sectors than others. Therefore additional ASR™ COUNTRY ASR™: 43% sector specific indicators have been developed COUNTRY RANKING: 2nd to provide further insight into the sustainability Ranks 1st in General category issues in each of the twelve ASR™ sectors. The indicators were developed by a team of sector specialists at Responsible Research, who actively research global best practice in sectoral Thailand sustainability practices. Company reporting on COMPANIES ANALYSED: 20 these sector specific indicators provide additional COUNTRY ASR™: 40% insight into the leading ESG issues facing specific COUNTRY RANKING: 4th sectors. Top performer on ASR™ Governance category In each of the Sector Reports we provide an overview of the key findings across each of the four categories, General, Environment, Social and Governance. We review the leading Malaysia Singapore Indonesia Philippines companies and laggards in the sector and cross COMPANIES ANALYSED: 20 COMPANIES ANALYSED: 28 COMPANIES ANALYSED: 20 COMPANIES ANALYSED: 20 reference with country specific analysis. Two COUNTRY ASR™: 42% COUNTRY ASR™: 39% COUNTRY ASR™: 38% COUNTRY ASR™: 29% sector specific indicators are included in each COUNTRY RANKING: 3rd COUNTRY RANKING: 5th COUNTRY RANKING: 6th COUNTRY RANKING: 9th of the reports to show examples on the types of Ranks 2nd in the ASR™ Social Strong disclosure in Low levels of disclosure in Poor disclosure in Governance issues investigated. category Governance. Environmental category. (9th).8 Asian Sustainability Rating™ Asian Sustainability Rating™ 9
  7. 7. TELECOM 2% UTILITIES 3%CHINA HONG KONG ASR™ BY CATEGORY Market Cap REAL ESTATE 3% ASR™ BY CATEGORY Market Cap UTILITIES 9% CONS. (DISC.) 10% (Ranking/10) by Sector (Ranking/10) by Sector CONS. (STAPLES) 3%COMPANIES ANALYSED: 208 GENERAL: 13% (10th) OTHER FIN. 10% BANKING 16% COMPANIES ANALYSED: 63 GENERAL: 22% (9th) TELECOM 15%COUNTRY ASR™: 20% ENVIRONMENT: 9% (10th) COUNTRY ASR™: 33% ENVIRONMENT: 15% (9th) ENERGY 7% CONS. (DISC.) 4%COUNTRY RANKING: 10th SOCIAL - TOTAL: 11% (10th) COUNTRY RANKING: 8th SOCIAL - OVERALL: 24% (9th) MATERIALS 7% CONS. (STAPLES) 2% SOCIAL - EMPLOYEE: 12% (10th) SOCIAL - EMPLOYEE: 21% (8th) MATERIALS 3% OTHER FIN. 6%FF MKT CAP (US$ bn): 1,951 FF MKT CAP (US$ bn): 404 SOCIAL - CUSTOMER: 9% (10th) SOCIAL - CUSTOMER: 15% (8th) I.T. 1% SOCIAL - SUPPLIERS: 2% (10th) I.T. 9% SOCIAL - SUPPLIERS: 18% (4th) BANKING 6% SOCIAL - COMMUNITY: 16% (10th) SOCIAL - COMMUNITY: 40% (8th) INDUSTRIALS 12% ENERGY 33% GOVERNANCE: 44% (8th) GOVERNANCE: 65% (4th) INDUSTRIALS 10% REAL ESTATE 28% HEALTHCARE 1% Although China leads our ASR™ results both in terms of the number of companies reviewed and market Although Hong Kong is often lauded as a centre of good corporate governance and is normally rated highly by capitalisation, it has the lowest score of all countries in the ASR™. Chinese companies often lack even basic independent surveys including the Asian Corporate Governance Association, our examination of Hong Kong financial documents and the prevalence of low-scoring companies (75 percent of the lowest 50 ASR™ scores were companies found some interesting divergence. Companies generally perform well on governance reporting and from China) dragged the average ASR™ score to 20 percent. The widespread lack of disclosure, even in Chinese, disclosing governance policy, but there is often only a small independent presence in the boardroom. In the Hong resulted in a last place ranking for Chinese companies in every ASR™ category except for Governance. Kong universe, independent nomination committees were also rare. The absence of disclosure on anti-corruption and bribery policies and clear whistleblower channels, combined with relatively modest results on several other Despite the often bleak reporting environment and lack of information available to investors in China, some key governance indicators, places Hong Kong just fourth on Governance in the ASR™, after Thailand, Singapore companies did score relatively well on the ASR™. Those companies often shared above average market caps as and Malaysia. well as a degree of international exposure beyond China. Recent legislation on the country’s stock exchanges may be promoting this improvement. The Shenzhen Stock Exchange issued a guidance notice on sustainability Scoring on ASR™ environmental indicators showed a wide disparity. CLP Holdings and Cathay Pacific both scored reporting for listed companies in early 2006, which it followed with training programmes. The Shanghai Stock 80 percent, amongst the highest in the region, whilst widespread poor and non-material reporting in this area Exchange introduced similar measures in May 2008 via the ‘Shanghai CSR Notice’ and the ‘Shanghai Environmental plagued the overall Hong Kong universe. This resulted in a ninth placement on the ASR™ Environment, with Disclosure Guidelines’. only China performing worse. Only a handful of companies disclosed a comprehensive environmental policy, and monitoring and reporting on performance was rare or difficult to assess. Most companies did not quantify Companies such as China Vanke performed less favourably because of their lack of English language disclosure their environmental impacts or disclose initiatives in key areas such as water consumption, energy efficiency, or rather than a fundamental lack of disclosure itself. It is also worth noting that several Chinese state owned waste production. Despite the high environmental impact of buildings, which account for 89 percent of end-use enterprises (SOEs), beyond just the expected flagship firms, scored relatively well within our Chinese universe electricity consumption in Hong Kong, there was particularly weak environmental reporting across the entire and in a few cases the ASR™ as a whole. This reflects the larger trends of increased reporting and engagement Real Estate Sector. With a growing number of certified ‘green’ buildings in Hong Kong real estate firms appear to by companies in China and the emerging role that SOEs have played in shaping China’s still nascent culture of acknowledge the commercial and marketing opportunities of these new or retrofit developments, however, few reporting. companies disclose the resource utilisation of their portfolio or set targets for reductions of environmental inputs. ASR™ rankings ASR™ rankings CLP Holdings and Cathay Pacific lead Hong Kong on ASR™ Rankings in Hong Kong ESG disclosure in all categories. Another observation Lenovo Group and China Shenhua are the is a large difference between Swire’s and Jardine’s outperforming outliers in a field of low scoring Group companies, which may stem from the mid companies including Renrenle and Shanghai Baili. 1980s when Swire’s committed to Hong Kong’s free Lenovo Group’s score on the Social category of the market and China’s leadership, whereas Jardine’s ASR™ makes it not just the leading company among transferred its corporate registration to Bermuda, our Chinese universe, but a leading company on this delisted from the Hong Kong Stock Exchange and category of the ASR™. established a secondary listing in Singapore. Both companies have succeeded financially but Swire’s ASR™ of 60% reflects a different level of internal management of sustainability risks. Sustainability by Sector Sustainability by Sector For the Chinese universe, while typically high No. of Companies The ASR™ highlighted six sustainability leaders No. of Companies scoring sectors such as Telecoms and IT continued 18 26 11 18 9 43 19 31 7 12 3 1 in Hong Kong which all scored over 60 percent 2 9 5 2 10 2 4 3 16 3 5 to achieve good scores overall, they showed a overall. Utilities companies had a particularly distinct drop off on Environmental and Social strong showing, especially on environmental and indicators where their non-Chinese sectoral peers social practices, reflecting the materiality of these often scored well. Also of note is the leading role of issues to Hong Kong utilities and well-enforced the Banking sector in China, which could be linked regulation. Given their heavy weighting in our ASR™ ASR™ to the China Banking Association’s sustainability Hong Kong universe, the low scoring by Real Estate guidelines released in 2009. The guide called companies on the ASR™ had a material impact on on banks to integrate social responsibility into GENERAL Hong Kong’s overall standing in the region. Also of GENERAL development strategies, governance structure, ENVIRON. note are the low scores returned by Hong Kong’s ENVIRON. corporate culture and business processes. Overall, SOCIAL two IT companies in our universe, which were well SOCIAL language remained an issue in the disclosure and GOVERN. below the average of their sectoral peers. GOVERN. reporting of many companies, contributing to low UTILITIES BANKING ENERGY HEALTHCARE CONS. (STAPLES) INDUSTRIALS I.T. MATERIALS OTHER FIN. REAL ESTATE TELECOM CONS. (DISC.) BANKING CONS. (STAPLES) ENERGY INDUSTRIALS I.T. MATERIALS OTHER FIN. REAL ESTATE TELECOM UTILITIES CONS. (DISC.) scores across all sectors in China. 10 Asian Sustainability Rating™ Asian Sustainability Rating™ 11
  8. 8. UTILITIES 6%INDIA ASR™ BY CATEGORY (Ranking/10) Market Cap TELECOM 3% by Sector REAL ESTATE 3% BANKING 14% INDONESIA ASR™ BY CATEGORY (Ranking/10) Market Cap by Sector UTILITIES 7%COMPANIES ANALYSED: 56 GENERAL: 41% (1st) COMPANIES ANALYSED: 20 GENERAL: 35% (3rd) OTHER FIN. 6% BANKING 29% CONS. (DISC.) 4%COUNTRY ASR™: 43% ENVIRONMENT: 33% (2nd) COUNTRY ASR™: 38% ENVIRONMENT: 15% (8th) TELECOM 17%COUNTRY RANKING: 2nd SOCIAL - TOTAL: 42% (3rd) COUNTRY RANKING: 6th SOCIAL - TOTAL: 39% (4th) CONS. (STAPLES) 7% SOCIAL - EMPLOYEE: 44% (3rd) SOCIAL - EMPLOYEE: 39% (5th)FF MKT CAP (US$ bn): 326 MATERIALS 14% FF MKT CAP (US$ bn): 64 MATERIALS 5% SOCIAL - CUSTOMER: 18% (4th) SOCIAL - CUSTOMER: 14% (9th) SOCIAL - SUPPLIERS: 17% (5th) SOCIAL - SUPPLIERS: 17% (6th) ENERGY 18% INDUSTRIALS 6% SOCIAL - COMMUNITY: 71% (3rd) SOCIAL - COMMUNITY: 72% (2nd) CONS. (DISC.) 14% GOVERNANCE: 55% (6th) I.T. 12% GOVERNANCE: 56% (5th) ENERGY 17% HEALTHCARE 3% CONS. (STAPLES) 5% INDUSTRIALS 10% India’s diverse company universe covers 11 of the 12 sectors of the ASR™ and also displays a broad mix of leaders Reporting scores in the General category are quite good, placing Indonesia third out of the ten countries in our and laggards in disclosure. Generally, reporting is strong with India placed in the top 5 in every category apart from universe. This high position could be linked to Indonesia’s mandatory approach to sustainability and sustainability Governance. Reporting in the General category was strongest with over half of companies delivering material disclosure through the Limited Liability Company Law Number 40/2007. According to the Law, activities related to sustainability reports that are relevant to the company’s business model. There is a strong link to international CSR implementation need to be disclosed in a companies’ Annual Report. However, no implementing regulation development standards, with three quarters of companies in our Indian universe aligning their sustainability for Article 74 currently exists, rendering the law unenforceable. strategies to the UN Millennium Development Goals. We found an absence of material reporting on environmental indicators, even though Indonesia is rich in natural While many private sector companies voluntarily disclose ESG information, this strong reporting could be resources and has environmentally-centered cement, coal mining and palm oil companies. Only one company influenced by the Indian Government, who have already has mandated Community Investment and other ESG provided detailed emissions information and responded to the recent CDP request for data (although chose standards for public sector companies and are currently working on a new code that will require all profit-making not to make this data public). This lack of reporting was prevalent in mining and coal companies despite recent companies to set aside a portion of their profits for sustainability initiatives. A further influence could be the 2009 legislation requiring disclosure of ‘CSR activities’ from companies in the natural resources sector. Companies Bill provides for class action lawsuits, giving stakeholders an important tool in making companies Indonesian companies almost universally scored well on community investment indicators, ranking second in the accountable for their actions. ASR™. This is in stark contrast to their engagement with customers, who often do not know their rights relating Indian Governance was a notable weak point in disclosure as many companies make incomplete disclosures to the products and services they access. Although this reporting on community investment is to be applauded, compared to many of their global or even regional peers. In particular, vagueness around nomination procedures it often focused on philanthropic activities and alignment of community activities with the company’s business in the country mean that only one third of companies had a clear independent nomination committee and less model was not always evident. This perhaps reflects that for many companies in Indonesia awareness of broader than 20 percent of companies had a clearly defined nomination procedure. ESG issues remains limited. ASR™ rankings ASR™ rankings India’s two ASR™ leaders, Wipro and Dr. Reddy’s are in very different sectors: IT and Health Care respectively. Dr. Reddy’s Labs notably stands out as Unilever Indonesia and Astra International’s scores other companies in its sector lag in disclosure. on the ASR™ place them close to the top of their The lowest ASR™ scores in India belong to two Real regional peers. The laggard Gudang Garam, a Estate companies, reflecting the lack of enforcement tobacco company, provides a stark contrast in the of standards and regulations where if comes to this reporting styles and sustainability practices of it’s sector in India. This compares unfavourably with Malaysian peer, British American Tobacco. Singapore, where the strongest reporters come from this sector. Sustainability by Sector Sustainability by Sector India is an IT leader and the industry No. of Companies Indonesia has four sustainability No. of Companies excels in every category except 6 4 4 3 5 3 9 4 3 3 2 5 leaders (each with an overall score of 2 9 5 2 10 2 4 3 Governance where it is beaten by the over 60 percent). These companies very strong disclosure practices of the incidentally come from four different Indian Materials Sector. Banking and 80 sectors (Consumer Staples, Consumer 70 Real Estate, lag far behind the other 70 Discretionary, Energy and Telecom). 60 sectors in India, and consistently poor 60 Energy, Indonesia’s largest sector in our 50 ASR™ ASR™ reporting and disclosure on all areas but universe, beat other Indonesian industry 50 40 the Governance category pull down their sectors in terms of reporting on all but 40 GENERAL GENERAL scores. The poor reporting standard of the Environment category, which proved 30 the Health Care sector is also notable and 30 ENVIRON. to be their weakest link and have the ENVIRON. 20 20 out of step with global norms despite the SOCIAL poorest reporting of any category in SOCIAL 10 10 high performance of one of the leaders GOVERN. Indonesia. GOVERN. on disclosure - Dr. Reddy’s Labs. 0 0 UTILITIES BANKING ENERGY INDUSTRIALS TELECOM MATERIALS CONS. (DISC.) CONS. (STAPLES) BANKING ENERGY HEALTHCARE INDUSTRIALS I.T. MATERIALS OTHER FIN. REAL ESTATE TELECOM UTILITIES CONS. (DISC.) CONS. (STAPLES) 12 Asian Sustainability Rating™ Asian Sustainability Rating™ 13

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