Responsible research csr introduction

SUSTAINABILITY IN ASIAESG REPORTING UNCOVEREDSEPTEMBER 2010

ACKNOWLEDGEMENTS

Authors | Alex Read-Brown, BA, Florent Bardy, MA, Rebecca Lewis, MBA,

Editors | Rumi Morales, MBA, Lucy Carmody, MA, Erin Lyon, BA

Research Manager | Dr Elena Chua, PhD

We also gratefully acknowledge the hard work and enthusiasm of the following responsible investment analysts, without whom this report would have been impossible. Benedict Choong, Fong Yee Chan, Harry Cheng, Jayson Huang Chung-en, Olivia Han, Paul Gu, Peter Lee Shun-Ta, Sang Jing Byun, Reese Kim, Laurent Vaslier, Sophie Normand, Gauri Nafrey, Sandra Arijon Pineyro, Sun Xi.

The following experts have, as ever, provided invaluable support :Melissa Brown, Sumi Dharnarajan, Melissa Ong.

The ASR™ is a ESG benchmarking tool that was developed from a collaboration between Responsible Research and CSR Asia. Responsible Research Pte Ltd, an independent ESG research company based in Singapore, exclusively owns the rights to the methodology and data. If you would like to know more about the ASR™, provide feedback or support, please contact us as [email protected].

USING ThE ASR™

INVESTORS

Investor 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. Current partners include several well respected global asset owners and managers. For examples of our monthly sector and thematic work please visit www.responsibleresearch.com. Investors interested in subscribing, bespoke portfolio benchmarking services, indexes and consulting advice please contact [email protected].

COMPANIES

If you are a company already included on the ASR™ and would like to access your full indicator breakdown this can be provided for a fee of US$350. If you are a company not currently included on the ASR™ but would like to know your current rating, this can also be provided. Sector analysis can be also be provided for companies wishing to know how their competitors are performing on sustainability disclosure. The cost would depend on the number of companies per sector and how many companies are new to the ASR™.

Once your rating is established, CSR Asia has associates in seven locations to assist you in defining a strategy for your future sustainability reporting, management and target setting. Please contact [email protected] for more information.

OThER

Media, government, NGOs and other categories of customers please contact [email protected].

http://www.asiansr.com

2 Asian Sustainability Rating™ 3Asian Sustainability Rating™

ABOUT ThE ASIAN SUSTAINABILITY RATING™ 3

KEY FINDINGS 4

ASR™ METhODOLOGY 6

COUNTRY & SECTOR OVERVIEW 8

COUNTRY REPORTS

China 10

Hong Kong 11

India 12

Indonesia 13

Malaysia 14

Philippines 15

Singapore 16

South Korea 17

Taiwan 18

Thailand 19

SECTOR REPORTS

Banking 20

Real Estate 22

Telecoms 24

Utilities 26

CONTENTS

ABOUT ThE ASIAN SUSTAINABILITY RATING™

The Asian Sustainability Rating™ (ASR™) is an environment, social and governance (ESG) benchmarking tool developed by Responsible Research and CSR Asia. Launched in 2009, ASR™ examines the publicly available information of the leading listed companies in ten Asian countries* and provides investors, companies and other stakeholders with a view of strategic sustainability of these companies.

The Global Financial Crisis of 2008-9 has brought about an increased emphasis on risk management, corporate governance, remuneration systems and the transparency of financial data. ESG data is increasingly seen as an important tool for investors who need look beyond traditional financial information to gain more understanding of investment risks and opportunities. With the assumption that thorough, transparent reporting provides a proxy for responsible management of business risk, strong ESG disclosure provides assurance in a company’s greater ability to achieve well-rounded growth over the long term while managing the ongoing challenges and opportunities in their operations.

The data in ASR™ 2010 can be used by responsible investors to benchmark portfolios and add a sustainability dimension to investment decision- making and engagement practices. Companies and their stakeholders can also use the tool to monitor their progress on sustainability and to review ESG management and disclosures from business partners and competitors. Individual company or peer analysis can be provided for companies wishing to know how their peers are performing on sustainability disclosure. Investors, NGOs and the media are also invited to access indicator data.

Corporate sustainability is an evolving process (see our ESG Reporting timeline) and ASR™ is not an end point. Rather it is an important, analytical contribution to the development of ESG reporting within Asia.

The ASR™ methodology is based on a set of 100 proprietary sustainability indicators, split into four ASR™ categories; General, Environment, Social and Governance, which cover disclosure on the main elements of ESG risk. We believe all public companies should be addressing each of these important factors through disclosure and realistic target setting irrespective of their sector. In theory, any company can aspire to and achieve a 100 percent rating on ASR™ within a few years of monitoring and reporting on these fundamental ESG issues.

The 2010 ASR™ universe comprises 542 companies and includes the largest listed corporate entities based on free float market capitalisation across ten countries. All companies are scored across the same ESG factors based on publicly available information only. In order that the end results are as unbiased as possible, there is no engagement or questionnaire of the companies in the methodology.

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 in company sustainability disclosure. In the near term, the ASR™ team will begin the third phase of development, which will include engagement with companies to understand the publicly given data, enabling the ASR™ to shift from a disclosure-only rating to one that also looks at strategic performance. Going forward a platform is planned for companies to upload their sustainability disclosure and comment on their rating, targets and potential for improvement.

* MSCI AC (All Country) Asia ex Japan

First Social Report for Ben & Jerry’s (US) by a commissioned “social auditor”.

Launch of the KLD400 (Ex Domini 400 Social Index), first benchmark index constructed using ESG factors.

First ever ‘sustainable development report’ published by Shell Canada.

The non-profit CERES (US) started a “Global Reporting Initiative”.

The Body Shop Social Statement introduces the concept of socially and environmentally responsible business practices to the UK High Street.

Launch of the DJ Sustainability Indexes tracking sustainability performance worldwide.

Launch of the Carbon Disclosure Project.

Brazilian bank Unibanco the first sell-side brokerage in the world to offer SRI research.

The GRI Institution was publicly inaugurated at the United Nations in New York City.

The UN invites institutional investors to develop the Principles for Responsible Investment (PRI).

The IFC applies Policy and Performance Standards on Social and Environmental Sustainability.

Shanghai Stock Exchange guidelines introduced.

UNCTAD 2009 Sustainable Stock Exchanges Dialogue, NY.

Launch of Reputex Hang Seng Index (HK) .

UNCTAD Sustainable Stock Exchange 2010 Dialogue, Xiamen. Responsible Research presents ‘Obstacles and Opportunities’ for promoting ESG reporting.

Singapore Exchange (“SGX”) guidance on ESG Reporting.

Launch of Asian Sustainability Rating™. Asia’s first independent ESG benchmarking tool.

Bursa Malaysia launched a CSR Framework to support implementation and reporting.

International Financial

Crisis

Progress in Sustainability Reporting


ASR™ 2010 KEY FINDINGS The 2010 ASR™ highlights the current leadership position of corporate Korea on ESG 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, surprisingly, is healthcare. However, the healthcare sector admittedly includes a relatively small universe of companies that is heavily weighted towards China and India.

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 laggards. For much of our universe, Governance was the only sustainability reporting of any kind and even that was mostly due to regulation or stock exchange listing requirements. This highlights the vital role regulators and exchanges play in setting minimum thresholds for reporting, and the importance of continuously engaging them to help improve corporate ESG reporting in Asia.

Around three quarters of our universe have some form of sustainability disclosure. However, 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 relations or corporate communications office, revealing a commonly held belief in Asia that sustainability reporting is more of a marketing tool to prove a company’s ‘green’ credentials. We found that although many companies in our universe were signatories to the UN Global Compact but this was not strongly indicative of ESG disclosure. Indeed more than half of our 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 to this marginal utility we did not include it as a sustainability indicator in the ASR™.

LANGUAGE OF REPORTING

Whilst agreeing that non-English language disclosure does not equal poor or non-material reporting, it is often of limited value to global responsible investors. We found 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 ‘responsibly managed’ capital globally, an English translation of ESG reports should be provided. This would improve ASR™ performance dramatically as the methodology gives only half points for local language reporting on indicators.

ENVIRONMENT

Many companies disclose an environmental policy but just one-third of companies provide a comprehensive policy backed by appropriate energy, water and waste initiatives. Additionally, there were a noticeable number of companies for whom ‘light bulb and washroom’ initiatives were the only types of environmental disclosure.

Around 35 percent of our universe reported allocating resources to adopting or developing energy efficient technologies. Whether economic rationale, ease of adoption or government stimulus is driving this high level of engagement, it is certainly encouraging to see initiatives in place. The next step is to translate these efforts into an understanding of energy usage, enhanced reporting and target setting for improvements.

SOCIAL

Virtually all companies in our universe disclose some form of community investment and charitable donations, as this has been a common feature of philanthropic company 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 more infrequent is any analysis or clear examination of the impact of these community initiatives.

As with environmental issues, many companies have stated policies on social issues, yet 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.

Integration of sustainability into supply chains is limited largely to companies grouped in the consumer staples and IT sectors, with several notable exceptions, including Singaporean Real Estate companies.

GOVERNANCE

Within our universe it is extremely rare for a company to have a tenure limit for independent 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.


ASR™ CATEGORIES

The ASR™ research methodology uses a proprietary set of 100 indicators covering all areas of sustainability. These indicators are grouped into four ASR™ categories – General, Environment, Social and Governance – and were carefully selected in order to represent the most realistic assessment of achievable best sustainability practices for Asian companies in 2010. In theory, any company could aspire to and achieve a 100 percent rating on ASR™ within a few years of monitoring and reporting on these fundamental ESG issues. Example indicators across the four ASR™ categories are shown below.

ASR™ METhODOLOGY

ASR™ SCORING AND ANALYSIS

All companies were scored by responsible investment analysts based in Singapore, South Korea, China and Hong Kong. This approach was undertaken to access the relevant language skills and local understanding of the markets in which the companies operate.

All ASR™ assessments are based on publicly available information including, but not limited to, annual reports, sustainability reports, corporate communications, press releases and web site information. 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.


ASR™ COUNTRY AND SECTOR OVERVIEW

Some ESG issues will be more material in certain sectors than others. Therefore additional ASR™ sector specific indicators have been developed to provide further insight into the sustainability 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 sustainability practices. Company reporting on these sector specific indicators provide additional insight into the leading ESG issues facing specific sectors.

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 companies and laggards in the sector and cross reference with country specific analysis. Two sector specific indicators are included in each of the reports to show examples on the types of issues investigated.

ASR™ SECTOR REPORTS

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

MALAYSIACOMPANIES ANALYSED: 20COUNTRY ASR™: 42%COUNTRY RANKING: 3rdRanks 2nd in the ASR™ Social category

INDIACOMPANIES ANALYSED: 56COUNTRY ASR™: 43%COUNTRY RANKING: 2ndRanks 1st in General category

ThAILANDCOMPANIES ANALYSED: 20COUNTRY ASR™: 40%COUNTRY RANKING: 4thTop performer on ASR™ Governance category

DEFINITIONS:COUNTRY ASR™: Average score from all companies

COUNTRY RANKING: Ranking amongst 10 countries in ASR™ universe

SINGAPORECOMPANIES ANALYSED: 28COUNTRY ASR™: 39%COUNTRY RANKING: 5thStrong disclosure in Governance.

INDONESIACOMPANIES ANALYSED: 20COUNTRY ASR™: 38%COUNTRY RANKING: 6thLow levels of disclosure in Environmental category.

PhILIPPINESCOMPANIES ANALYSED: 20COUNTRY ASR™: 29%COUNTRY RANKING: 9th Poor disclosure in Governance (9th).

ChINACOMPANIES ANALYSED: 208COUNTRY ASR™: 20%COUNTRY RANKING: 10thBest performance in Governance category, where it still only ranks 8/10.

KOREACOMPANIES ANALYSED: 57COUNTRY ASR™: 44%COUNTRY RANKING: 1stTop performer overall, with a leadership position in Environmental category.

TAIWANCOMPANIES ANALYSED: 50COUNTRY ASR™: 34%COUNTRY RANKING: 7th Lowest ASR™ score in the Governance category.

hONG KONGCOMPANIES ANALYSED: 63COUNTRY ASR™: 33%COUNTRY RANKING: 8thRanks 4th in Governance category


Although China leads our ASR™ results both in terms of the number of companies reviewed and market capitalisation, it has the lowest score of all countries in the ASR™. Chinese companies often lack even basic financial documents and the prevalence of low-scoring companies (75 percent of the lowest 50 ASR™ scores were from China) dragged the average ASR™ score to 20 percent. The widespread lack of disclosure, even in Chinese, resulted in a last place ranking for Chinese companies in every ASR™ category except for Governance.

Despite the often bleak reporting environment and lack of information available to investors in China, some companies did score relatively well on the ASR™. Those companies often shared above average market caps as 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 reporting for listed companies in early 2006, which it followed with training programmes. The Shanghai Stock Exchange introduced similar measures in May 2008 via the ‘Shanghai CSR Notice’ and the ‘Shanghai Environmental Disclosure Guidelines’.

Companies such as China Vanke performed less favourably because of their lack of English language disclosure rather than a fundamental lack of disclosure itself. It is also worth noting that several Chinese state owned enterprises (SOEs), beyond just the expected flagship firms, scored relatively well within our Chinese universe and in a few cases the ASR™ as a whole. This reflects the larger trends of increased reporting and engagement by companies in China and the emerging role that SOEs have played in shaping China’s still nascent culture of reporting.

Lenovo Group and China Shenhua are the outperforming outliers in a field of low scoring companies including Renrenle and Shanghai Baili. Lenovo Group’s score on the Social category of the ASR™ makes it not just the leading company among our Chinese universe, but a leading company on this category of the ASR™.

SUSTAINABILITY BY SECTORFor the Chinese universe, while typically high scoring sectors such as Telecoms and IT continued to achieve good scores overall, they showed a distinct drop off on Environmental and Social indicators where their non-Chinese sectoral peers often scored well. Also of note is the leading role of the Banking sector in China, which could be linked to the China Banking Association’s sustainability guidelines released in 2009. The guide called on banks to integrate social responsibility into development strategies, governance structure, corporate culture and business processes. Overall, language remained an issue in the disclosure and reporting of many companies, contributing to low scores across all sectors in China.

ASR™ RANKINGS

ChINA ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 13% (10th)

ENVIRONMENT: 9% (10th)

SOCIAL - TOTAL: 11% (10th)

SOCIAL - EMPLOYEE: 12% (10th)

SOCIAL - CUSTOMER: 9% (10th)

SOCIAL - SUPPLIERS: 2% (10th)

SOCIAL - COMMUNITY: 16% (10th)

GOVERNANCE: 44% (8th)

COMPANIES ANALYSED: 208

COUNTRY ASR™: 20%

COUNTRY RANKING: 10th

FF MKT CAP (US$ bn): 1,951

MARKET CAP BY SECTOR

ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

18

CON

S. (D

ISC.

)

26

CON

S. (S

TAPL

ES)

11

ENER

GY

18

IND

UST

RIA

LS

HEA

LTH

CARE

9

I.T.

43

REA

L ES

TATE

7

MAT

ERIA

LS

19

TELE

COM

12

OTH

ER F

IN.

31

UTI

LITI

ES

13

ASR

™

No. of Companies

CONS. (DISC.) 4%

CONS. (STAPLES) 2%

ENERGY 33%

OTHER FIN. 10% BANKING 16%

REAL ESTATE 3%

MATERIALS 7%

HEALTHCARE 1%

INDUSTRIALS 10%

TELECOM 2%

I.T. 9%

UTILITIES 3%

Although Hong Kong is often lauded as a centre of good corporate governance and is normally rated highly by independent surveys including the Asian Corporate Governance Association, our examination of Hong Kong companies found some interesting divergence. Companies generally perform well on governance reporting and disclosing governance policy, but there is often only a small independent presence in the boardroom. In the Hong 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 key governance indicators, places Hong Kong just fourth on Governance in the ASR™, after Thailand, Singapore and Malaysia.

Scoring on ASR™ environmental indicators showed a wide disparity. CLP Holdings and Cathay Pacific both scored 80 percent, amongst the highest in the region, whilst widespread poor and non-material reporting in this area plagued the overall Hong Kong universe. This resulted in a ninth placement on the ASR™ Environment, with 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 their environmental impacts or disclose initiatives in key areas such as water consumption, energy efficiency, or waste production. Despite the high environmental impact of buildings, which account for 89 percent of end-use electricity consumption in Hong Kong, there was particularly weak environmental reporting across the entire Real Estate Sector. With a growing number of certified ‘green’ buildings in Hong Kong real estate firms appear to acknowledge the commercial and marketing opportunities of these new or retrofit developments, however, few companies disclose the resource utilisation of their portfolio or set targets for reductions of environmental inputs.

CLP Holdings and Cathay Pacific lead Hong Kong on ESG disclosure in all categories. Another observation is a large difference between Swire’s and Jardine’s Group companies, which may stem from the mid 1980s when Swire’s committed to Hong Kong’s free market and China’s leadership, whereas Jardine’s transferred its corporate registration to Bermuda, delisted from the Hong Kong Stock Exchange and 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 SECTORThe ASR™ highlighted six sustainability leaders in Hong Kong which all scored over 60 percent overall. Utilities companies had a particularly strong showing, especially on environmental and social practices, reflecting the materiality of these issues to Hong Kong utilities and well-enforced regulation. Given their heavy weighting in our Hong Kong universe, the low scoring by Real Estate companies on the ASR™ had a material impact on Hong Kong’s overall standing in the region. Also of note are the low scores returned by Hong Kong’s two IT companies in our universe, which were well below the average of their sectoral peers.

ASR™ RANKINGS

hONG KONG ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 22% (9th)


SOCIAL - OVERALL: 24% (9th)







COUNTRY ASR™: 33%


FF MKT CAP (US$ bn): 404


CONS. (DISC.) 10%

CONS. (STAPLES) 3%

ENERGY 7%

OTHER FIN. 6%

BANKING 6%

REAL ESTATE 28%

MATERIALS 3%

INDUSTRIALS 12%

TELECOM 15%

I.T. 1%

UTILITIES 9%

ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

2

CON

S. (D

ISC.

)

9

CON

S. (S

TAPL

ES)

5

ENER

GY

2

IND

UST

RIA

LS

10

I.T.

2

REA

L ES

TATE

16

MAT

ERIA

LS

4

TELE

COM

3

OTH

ER F

IN.

3

UTI

LITI

ES

5

ASR

™

No. of Companies

ASR™ RANKINGS IN hONG KONG


India’s diverse company universe covers 11 of the 12 sectors of the ASR™ and also displays a broad mix of leaders and laggards in disclosure. Generally, reporting is strong with India placed in the top 5 in every category apart from Governance. Reporting in the General category was strongest with over half of companies delivering material sustainability reports that are relevant to the company’s business model. There is a strong link to international development standards, with three quarters of companies in our Indian universe aligning their sustainability strategies to the UN Millennium Development Goals.

While many private sector companies voluntarily disclose ESG information, this strong reporting could be influenced by the Indian Government, who have already has mandated Community Investment and other ESG standards for public sector companies and are currently working on a new code that will require all profit-making companies to set aside a portion of their profits for sustainability initiatives. A further influence could be the 2009 Companies Bill provides for class action lawsuits, giving stakeholders an important tool in making companies accountable for their actions.

Indian Governance was a notable weak point in disclosure as many companies make incomplete disclosures compared to many of their global or even regional peers. In particular, vagueness around nomination procedures in the country mean that only one third of companies had a clear independent nomination committee and less than 20 percent of companies had a clearly defined nomination procedure.

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 other companies in its sector lag in disclosure. The lowest ASR™ scores in India belong to two Real Estate companies, reflecting the lack of enforcement of standards and regulations where if comes to this sector in India. This compares unfavourably with Singapore, where the strongest reporters come from this sector.

SUSTAINABILITY BY SECTORIndia is an IT leader and the industry excels in every category except Governance where it is beaten by the very strong disclosure practices of the Indian Materials Sector. Banking and Real Estate, lag far behind the other sectors in India, and consistently poor reporting and disclosure on all areas but the Governance category pull down their scores. The poor reporting standard of the Health Care sector is also notable and out of step with global norms despite the high performance of one of the leaders on disclosure - Dr. Reddy’s Labs.

ASR™ RANKINGS

INDIA ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 41% (1st)

ENVIRONMENT: 33% (2nd)

SOCIAL - TOTAL: 42% (3rd)

SOCIAL - EMPLOYEE: 44% (3rd)



SOCIAL - COMMUNITY: 71% (3rd)



COUNTRY ASR™: 43%

COUNTRY RANKING: 2nd



CONS. (DISC.) 4%

CONS. (STAPLES) 7%

ENERGY 18%

OTHER FIN. 6%

BANKING 14%REAL ESTATE 3%

HEALTHCARE 3%

MATERIALS 14%

INDUSTRIALS 10%

TELECOM 3%

I.T. 12%

UTILITIES 6%

ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

6

CON

S. (D

ISC.

)

4

CON

S. (S

TAPL

ES)

4

ENER

GY

3

IND

UST

RIA

LS

HEA

LTH

CARE

5

I.T.

3

REA

L ES

TATE

3

MAT

ERIA

LS

9

TELE

COM

3

OTH

ER F

IN.

4

UTI

LITI

ES

2 5

ASR

™

No. of Companies

01020304050607080

Reporting scores in the General category are quite good, placing Indonesia third out of the ten countries in our universe. This high position could be linked to Indonesia’s mandatory approach to sustainability and sustainability disclosure through the Limited Liability Company Law Number 40/2007. According to the Law, activities related to CSR implementation need to be disclosed in a companies’ Annual Report. However, no implementing regulation for Article 74 currently exists, rendering the law unenforceable.

We found an absence of material reporting on environmental indicators, even though Indonesia is rich in natural resources and has environmentally-centered cement, coal mining and palm oil companies. Only one company provided detailed emissions information and responded to the recent CDP request for data (although chose not to make this data public). This lack of reporting was prevalent in mining and coal companies despite recent legislation requiring disclosure of ‘CSR activities’ from companies in the natural resources sector.

Indonesian companies almost universally scored well on community investment indicators, ranking second in the ASR™. This is in stark contrast to their engagement with customers, who often do not know their rights relating to the products and services they access. Although this reporting on community investment is to be applauded, it often focused on philanthropic activities and alignment of community activities with the company’s business model was not always evident. This perhaps reflects that for many companies in Indonesia awareness of broader ESG issues remains limited.

Unilever Indonesia and Astra International’s scores on the ASR™ place them close to the top of their regional peers. The laggard Gudang Garam, a tobacco company, provides a stark contrast in the reporting styles and sustainability practices of it’s Malaysian peer, British American Tobacco.

SUSTAINABILITY BY SECTORIndonesia has four sustainability leaders (each with an overall score of over 60 percent). These companies incidentally come from four different sectors (Consumer Staples, Consumer Discretionary, Energy and Telecom). Energy, Indonesia’s largest sector in our universe, beat other Indonesian industry sectors in terms of reporting on all but the Environment category, which proved to be their weakest link and have the poorest reporting of any category in Indonesia.

ASR™ RANKINGS

INDONESIA ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 35% (3rd)






SOCIAL - COMMUNITY: 72% (2nd)



COUNTRY ASR™: 38%




CONS. (DISC.) 14%

CONS. (STAPLES) 5%

ENERGY 17%

BANKING 29%

MATERIALS 5%

INDUSTRIALS 6%

TELECOM 17%

UTILITIES 7%

ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

2

CON

S. (D

ISC.

)

9

CON

S. (S

TAPL

ES)

5

ENER

GY

2

IND

UST

RIA

LS

10 2

MAT

ERIA

LS

4

TELE

COM

3

UTI

LITI

ES

ASR

™

No. of Companies

010203040506070


Malaysian companies achieve strong scores within the Social category, with leading companies reporting diligently on their stakeholder engagement with customers, employees, suppliers and the communities in which they operate. This may reflect the prominence of foreign-owned companies and government-linked companies (GLCs) within our universe and the pioneering role they play on reporting on these issues in Malaysia. Support in driving voluntary improvements in ESG reporting come from the ‘Silver Book’, launched as part of the GLC Transformation Programme, which provides firms with scorecards and guidelines to measure and gauge the effectiveness of their sustainability policies.

Malaysian companies also scored well across most indicators in the Governance category, which is likely influenced by the CSR initiatives undertaken by Bursa Malaysia, the country’s stock exchange. In 2006, the listing requirements were altered to include a “requirement to provide a description of the corporate social responsibility activities or practices undertaken by the listed issuer and its subsidiaries or if there are none, a statement to that effect”. At the same time Bursa Malaysia launched a framework as a guide for PLCs in implementing reporting on sustainability issues.

As a resource rich country, the environment is a hot issue in Malaysia and the country has been strongly criticised by environmentalists regarding unsustainable palm oil cultivation practices and the resultant negative ecological impact on lowland tropical forests and peat lands. In all sectors across our Malaysian universe, almost all companies score below 25% for their Environmental reporting with only two companies responding to the latest CDP information request, and neither of these making its disclosure public. This is just one of the indications that quantitative environmental reporting is not yet widespread in the country, perhaps as a result of an entrenched view of social reporting and community investment equating to sustainability.

With an ASR™ of 78%, DiGi Telecommunications Sdn Bhd led not just our Malaysian universe but the entire Telecoms sector. Its reporting strength in the Social category shows a particular strength in consumer engagement where it specifically focussed on underserved communities.

SUSTAINABILITY BY SECTOROne of the defining aspects of Malaysian companies across all sectors is the relatively strong showing on the Social category of the ASR™, particularly the Employee sub-category. Even Malaysian banks, who scored lower than many other companies in the ASR™, scored well above the regional sector average in this sub-category. Malaysian Telecoms, Utilities and Consumer Staples ASR™ results placed them as leaders among Malaysian companies, and in the case of Telecoms, their regional peers as well. With an ASR™ of 78%, DiGi Telecommunications led not just our Malaysian universe, but the entire Asian Telecoms sector. It showed reporting strength in the Social category, with a particular strength in consumer engagement, where it focused on underserved communities.

ASR™ RANKINGS

MALAYSIA ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 30% (5th)


SOCIAL - TOTAL: 42% (2nd)

SOCIAL - EMPLOYEE: 45% (2nd)


SOCIAL - SUPPLIERS: 20% (3rd)


GOVERNANCE: 68% (3rd)


COUNTRY ASR™: 42%

COUNTRY RANKING: 3rd


ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

4

CON

S. (D

ISC.

)

1

CON

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TAPL

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4 3

IND

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RIA

LS

1 1

REA

L ES

TATE

3

UTI

LITI

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TELE

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IN.

3

ASR

™

No. of Companies

CONS. (DISC.) 6%

CONS. (STAPLES) 16%

OTHER FIN. 4%

BANKING 34%

REAL ESTATE 2%

INDUSTRIALS 13%

TELECOM 14%

UTILITIES 11%

*

* For investors who exclude ‘sin stocks’ from their portfolios the next best performer was YTL Corporation (YTL:MK).

INDONESIA

Outside of the top three or four companies, our Philippines universe is characterised by a widespread lack of disclosure on environmental and social indicators and mostly immaterial reporting in general. Reflecting on the deeply entrenched culture of paternalistic corporate philanthropy, many companies in the Philippines see sustainability as the company Foundations’ activities, rather than an embedded part of business practice. Therefore, despite the focus of business owners on their charitable deeds, the country scores second to last in this area. The ad hoc, philanthropic nature of these activities is evidenced by indicators which show that only a handful of companies have defined objectives for their community investment programmes. Improvements are planned, in August 2007 the Philippine Board of Investment (BoI) adopted a new policy that requires companies who register for government Investment Assistance to implement CSR programs to ensure that the fiscal incentives granted to them trickle down to the communities hosting their projects.

The Philippine Securities and Exchange Commission (PSEC) is now encouraging increased reporting from both a social and environmental standpoint with listed companies asked to make additional statements which should improve ratings in the future. On Governance reporting, the Philippines ranks ninth in the ASR™. Only two companies reported that Independent Directors make up at least 30 percent or more of their boards, disclosure on a clear whistleblower channel was rare, and less than half of the companies disclose a comprehensive risk management process.

Ayala Land, a Real Estate sector leader, is the standout in a very skewed Philippine universe. Ayala Land is notably one of only two Philippines companies in the top 20 by market cap to have a board member responsible for sustainability issues. Manila Water, another Ayala family controlled company, does well on social reporting and is the only company in the Philippine universe to disclose setting quantifiable ESG standards for suppliers and business partners.

SUSTAINABILITY BY SECTORWithin our Philippine universe, only the Real Estate and Utilities sector stood out to any degree. For Real Estate this was due solely to Ayala Land. However for Utilities, the relatively good reporting by Manila Water and its peers stood out. This is consistent with the pattern of above average reporting seen from Utilities throughout the ASR™. The poor reporting by the Philippine telecom companies, however, is out of step with regional and global norms.

ASR™ RANKINGS

PhILIPPINES ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 25% (8th)









COUNTRY ASR™: 29%



CONS. (DISC.) 10%

CONS. (STAPLES) 3%

ENERGY 7%

OTHER FIN. 6%

BANKING 6%

REAL ESTATE 28%

MATERIALS 3%

INDUSTRIALS 12%

TELECOM 15%

I.T. 1%

UTILITIES 9%

ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

4

CON

S. (D

ISC.

)

1

CON

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TAPL

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1

ENER

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2

IND

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RIA

LS

3 1

REA

L ES

TATE

2

MAT

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LS

2

TELE

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3

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IN.

1

UTI

LITI

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ASR

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No. of Companies


Singapore has an established role as a trusted Asian business hub and home for regional listings yet the results from ASR™ company assessments place it only fifth in the ASR™ country rankings. Comprehensive governance reporting is widespread and the high scores achieved in this ASR™ category serve as the foundation of its country scorings. Progress in this area has been supported mainly by individual industry initiatives aimed at promoting good corporate governance practices.

Singapore companies demonstrate reasonably strong performance in the Environment category, potentially driven by high environmental and pollution standards. However, there is currently limited mainstream ESG reporting beyond Governance issues. Progress outside of this aspect of reporting has been focused on a number of issue specific sustainability initiatives and progress has benefited from a heavy use of incentives to drive change. For example in Real Estate, the ‘Green Mark’ scheme is driving environmentally conscious construction on the island to ensure that 80% of buildings are certified as sustainable buildings by 2030.

The reliance of companies on guidance, awards and endorsement of best practices, rather than regulation, could be the reason why government-linked companies (GLCs) do not yet have a distinctive pattern of sector leadership yet. However, there is a huge potential for change and it will be interesting to see how companies and investors respond to the recently issued Guidelines for Sustainability disclosure issued by the Singapore Stock Exchange which is open for consultation until October 2010.

City Developments Limited and CapitaLand are the leaders among Singaporean companies. Their scores on Environmental reporting make them leaders not just in Singapore, but among their regional peers as well. In sharp contrast, Parkway Holdings low scores are, perhaps, more due to the Board’s attention being diverted by the recent controversy over the lack of independence of some Directors during the battle for control, which has drawn the attention of the Securities Investors Association.

SUSTAINABILITY BY SECTORThe Real Estate sector leads the universe with their relatively high scores on Governance, reflecting the materiality of these issues to Real Estate companies operating in Singapore. The Real Estate sector also includes the only three sustainability leaders in Singapore (each scoring more than 60%), with companies on the island perhaps responding to increasing competition around ‘green’ building which, thanks to government incentives, have become commonplace. The stronger scores of Wilmar and Olam in the Consumer Staples sector could indicate these companies are responding to increased awareness from customers about environmental and social issues in the region.

ASR™ RANKINGS

SINGAPORE ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 26% (6th)




SOCIAL - CUSTOMER: 21% (3rd)

SOCIAL - SUPPLIERS: 21% (2nd)




COUNTRY ASR™: 39%



ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

2

CON

S. (D

ISC.

)

9

CON

S. (S

TAPL

ES)

5 2

IND

UST

RIA

LS

HEA

LTH

CARE

10

I.T.

2

REA

L ES

TATE

164

TELE

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IN.

3

ASR

™

No. of Companies

CONS. (DISC.) 4%

CONS. (STAPLES) 9%

HEALTHCARE 1%

OTHER FIN. 7%

REAL ESTATE 15%

INDUSTRIALS 17%

TELECOM 10%

I.T. 4%

BANKING 33%

05

1015202530354045

South Korea, Asia’s fourth-largest economy, demonstrates a strong level of disclosure across all categories except for Governance, positioning the country as the overall leader in our ASR™ Country Ranking. The balance of ASR™ scores displays a pattern evident to investors, and similar to Japan, where strong environmental and social reporting are offset by comparatively weak governance standards. Leading global brands such as Samsung Electronics and Hyundai Motors potentially influence this robust reporting, often using the highest international reporting standards. These highly visible companies have undertaken a range of initiatives in an effort to align themselves with global trends on energy efficiency, climate change and resource utilisation and are likely influencing the Korean company universe to improve disclosure.

Government-linked companies such as POSCO and KEPCO also draw on high global standards, especially in environmental areas, which is important given the 2009 government commitment to a 2020 emissions reduction target. South Korea is Asia’s fastest growing carbon polluter and will need the support of the public and private sector in order to head off an estimated 30 percent rise in emissions if no action is taken.

The slow pace of improvements in the area of Governance reporting can be linked to disagreement over the appropriateness of specific governance reform proposals between the corporate sector, led by the chaebols, on one side, and civic groups along with the current government on the other side. Although almost 80 percent of companies in our Korean universe have an anti corruption or bribery policy this indicator does not capture ‘facility payments’ to bureaucrats, currently a hot corruption issue in the country.

After some formative governance challenges, SK Telecom is a noteworthy leader based on the strength of its General and Governance reporting, breaking with the relatively weaker scores of many Korean companies in these categories. By contrast POSCO stands out due to its high scores in the Environmental and Social categories. Our laggards however highlight that even in Korea there are many companies with limited engagement on a range of material issues.

SUSTAINABILITY BY SECTORAcross all sectors, the Korean universe was defined by well above average scoring on the Environmental and Social categories. The only significant deviation from this trend is in Korea’s Banking and Other Financials sectors which lead on Governance disclosure. Additionally, despite their relatively good scores, Korean Industrials were, on average, outscored by the less numerous Telecoms on the Environmental category, and Utilities on the Environmental and Social Categories. Also worth noting is the strong showing of Korean Consumer Discretionary companies which places them, on average, ahead of their sectoral peers.

ASR™ RANKINGS

SOUTh KOREA ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 40% (2nd)

ENVIRONMENT: 38% (1st)

SOCIAL - TOTAL: 47% (1st)

SOCIAL - EMPLOYEE: 46% (1st)

SOCIAL - CUSTOMER: 48% (1st)


SOCIAL - COMMUNITY: 80% (1st)



COUNTRY ASR™: 44%

COUNTRY RANKING: 1st


ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

10

CON

S. (D

ISC.

)

5

CON

S. (S

TAPL

ES)

4

ENER

GY

3

IND

UST

RIA

LS

15

I.T.

6 3

MAT

ERIA

LS

7

TELE

COM

2

OTH

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IN.

2

UTI

LITI

ES

ASR

™

No. of Companies

CONS. (DISC.) 10%

CONS. (STAPLES) 3%

ENERGY 7%

OTHER FIN. 6%BANKING 6%

MATERIALS 3%

INDUSTRIALS 12%

TELECOM 15%

I.T. 1%

UTILITIES 9%

0

10

20

30

40

50

60


PhILIPPINES

ThAILAND

ASR™ scores of Taiwanese companies place them at both extremes of the scoring spectrum. At one end, they achieve their highest scores in supply chain management, which reflects competitive requirements faced by their globally renowned IT sector. This leadership position was driven by strong reporting of the top 14 companies in the universe, which had the relevant policies and engagement protocols in place. Beyond this leading group, sustainable supply chain management was non-existent.

At the other end, Taiwanese companies demonstrate an extremely low level of disclosure on Governance indicators. Less than half of companies in Taiwan communicate on the remuneration of their Boards and only three companies report greater than 50 percent independent board membership.

ESG management is still far from the norm in Taiwan. Even among high scoring IT companies, only a handful reported having a Board level member or committee responsible for ESG, and the disclosure of a direct contact for ESG queries was rare. Although there is a reported high level of accountability to customers and clients in the supply chain, other stakeholders are generally still neglected, as could be witnessed during the recent Foxconn affair.

Overall, Taiwanese companies displayed poor reporting across a range of Governance indicators, though it appears that change in this area may be forthcoming due to local regulatory pressure and from the Taiwan Stock Exchange. It should be noted that within our Taiwan universe, several companies received half point scores due to reporting only in their local language.

TSMC’s strong environmental reporting performance is reflected in its disclosure on resources and its Green Factory Programme, which benchmarks factories against International Green Building standards. TSMC was joined as country leader by United Microelectronics, which also has a strong focus on supply chain management, an area with generally poor disclosure elsewhere in Asia.

SUSTAINABILITY BY SECTORTaiwanese IT companies dominate the ASR™ sector scores with generally strong results across all 24 companies. Although containing a smaller universe of companies, the Taiwanese telecoms sector scored consistently well with a pattern of good reporting on environmental and social indicators. Uni President, the sole Consumer Staples company within our Taiwan universe, also stood out for its relatively good reporting on social and environmental issues.

ASR™ RANKINGS

TAIWAN ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 25% (7th )

ENVIRONMENT: 29% (3rd)

SOCIAL - TOTAL: 36% (5th )

SOCIAL - EMPLOYEE: 42% (4th ) SOCIAL - CUSTOMER: 31% (2nd )

SOCIAL - SUPPLIERS: 23% (1st )

SOCIAL - COMMUNITY: 38% (9th )

GOVERNANCE: 41% (10th )


COUNTRY ASR™: 34%



ENVIRON.

SOCIAL

GENERAL

GOVERN.

BAN

KIN

G

11

CON

S. (D

ISC.

)

1

CON

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TAPL

ES)

1

ENER

GY

1

IND

UST

RIA

LS

1

I.T.

24 3

MAT

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LS

7

TELE

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1

ASR

™

No. of Companies

CONS. (DISC.) 1%BANKING 8%

CONS. (STAPLES) 1%ENERGY 1%

INDUSTRIALS 1%

I.T. 60%

MATERIALS 14%

OTHER FIN. 8%

TELECOM 6%

MALAYSIA

PhILIPPINES

ESG disclosure efforts in Thailand to date have focused on promoting the implementation of good corporate governance policies. The Stock Exchange of Thailand’s (SET) corporate governance code also requires the setting and disclosure of “clear policies on environmental and social issues” for all listed companies. This effort has resulted in an impressive average score of 75%, placing it above traditional Asian governance leaders, Singapore and Hong Kong. We have to be mindful, however, that only 20 companies were scored in the Thai market, compared to 28 in Singapore and 63 in Hong Kong. This extract of the very top of the Thai market has probably skewed the results towards the high end, but it does seem to also reflect the impact of strong national policies towards sustainable development such as The Sufficiency Economy Philosophy (SEP), promoted by His Majesty, the King of Thailand as the way to achieve sustainable development. No clear guidelines have been issued on SEP implementation, however, so companies do not have clear direction in this regard or guidance on disclosure principles.

In our Thai universe, we find that there is largely weak environmental and social reporting, perhaps reflecting a lack of local initiatives. None of the companies in our universe gives a direct named contact for ESG queries. Driven by global trends, perceptions have been shifting and reporting is on the rise in Thailand, particularly in the high impact materials and energy sectors. Although it is encouraging to see a handful of companies report on resource utilisation issues, no company in our Thai universe sets targets for energy use, water use or waste production – a vital component of any useful ESG report.

Siam Cement stands out among our Thai universe with strong reporting across the board, comparing favourably to many of its regional competitors in this sector, particularly in China and India.

SUSTAINABILITY BY SECTORCompanies from the Materials and Energy sectors lead the ASR™ scores for Thailand and their strong performance on both social and environment categories reflect the materiality of these issues to these high-impact sectors. Governance scores remain strong across all sectors, except Industrials where the averages are influenced by CP Group’s extremely poor scores. The largest variation in scores across the sectors comes in the Social category. Within this category there is consistently strong performance on community engagement, although larger differences in reporting are found for engagement with consumers and suppliers.

ASR™ RANKINGS

ThAILAND ASR™ BY CATEGORY

(Ranking/10)

GENERAL: 32% (4th)

ENVIRONMENT: 16% (7th )

SOCIAL - TOTAL: 31% (6th )

SOCIAL - EMPLOYEE: 29% (6th )

SOCIAL - CUSTOMER: 16% (6th )

SOCIAL - SUPPLIERS: 9% (8th )

SOCIAL - COMMUNITY: 62% (6th )

GOVERNANCE: 75% (1st )


COUNTRY ASR™: 40%


FF MKT CAP (US$B): 58

CONS. (STAPLES) 8%ENERGY 33%

BANKING 33%

MATERIALS 11%

INDUSTRIALS 7%

TELECOM 7%

I.T. 1%

ENVIRON.

SOCIAL

GENERAL

GOVERN.

7 2 4 2 1 3 1

ASR

™

No. of Companies

BAN

KIN

G

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TAPL

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ENER

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IND

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AVERAGE ASR™: 31%

MKT CAP (US$ bn): 599

BANKING

This ASR™ Banking Sector Report is based on a review of the publicly available information of 63 banks in Asia, representing a free float market capitalisation of just under US$600 billion. It includes an analysis of the key financial firms from each market within the MSCI AC Asia ex Japan Index providing a full view of the banking leaders and laggards in ESG reporting across Asia.

• Sustainability reporting is becoming the norm in the banking sector with more than 85 percent of banks publishing a publicly available Sustainability Report. Approximately half of the 63 banks deliver a report that is comprehensive and detailed. Only 11 percent, however, used GRI criteria to structure their responses. • Although better reporting points to growing company awareness of sustainability issues, management structures are lagging behind. Only 11 percent of banks have a committee or board representation on sustainability and only 14.3 percent provide relevant training to their employees.

• Approximately two-thirds of banks in our universe publicly report on their Human Resources policy and employee benefits statements, but only one-third did so in a comprehensive manner.• Despite an increased public focus on responsible lending practices, only one-third of banks have comprehensive service responsibility codes and just 22 percent have customer-focused initiatives such as the labeling of financial products.• Banks are normally heavily involved in the communities in which they operate, but of the 80 percent that report on their community investment, only 17.5 percent monitor the effectiveness of these investments.

• Less than 10 percent of banks use an environmental management system (e.g. ISO 14001) potentially reflecting the view of the low level of materiality of environmental issues in the industry. This, of course, compares unfavorably with sectors such as Materials and also lags behind sectors such as Telecoms, where a third of companies have a system in place.• Although energy efficiency initiatives are in place in 44 percent of banks, detailed environmental reporting on resource utilisation lags behind with disclosures of energy consumption in only 10 percent of banks. However, awareness of the importance of reporting is clear, with approximately one-third of banks responding to CDP.

• Every bank in our universe publishes a comprehensive governance report separately or as part of its annual report, covering its compliance with relevant codes such as listing requirements. With this level of disclosure it is unsurprising that banks achieved their highest average score in this category. • Despite the overall good performance, vagueness remains around nomination procedures and remuneration levels for more than half the banks. Although over 50 percent the banks have an anticorruption or bribery policy, comparatively few companies (27%) have a clear whistleblower channel by which material issues could be highlighted and addressed.

Average Score: 14% ASR™ Best in Class Asia: Daegu Bank, KR, 100% Global Peer: Standard Char-tered, UK, 92%

Average Score: 14% ASR™ Best in Class Asia: Daegu Bank, KR, 56% Global Peer: Standard Chartered, UK, 72%

Average Score: 7% ASR™ Best in Class Asia: Daegu Bank, KR, 85% Global Peer: Citi Group, US, 85%

Average Score: 38% ASR™ Best in Class Asia: Bank of Ayudhya, TH, 89% Global Peer: HSBC, UK, 92%

ENVIRONMENTGENERAL

GOVERNANCESOCIAL

ASR™ KEY FINDINGS

FREE FLOAT MARKET CAP BY COUNTRY

SECTOR SPECIFIC INSIGhT Responses to two of the ASR™ Banking Sector Specific Questions focus on the material risks of responsible lending and money laundering.

Does the company have in place an anti-money laundering policy, clearly outlining the ways in which they will ensure that such practices do not take place through their bank?

Money laundering is an important topic in emerging Asian economies due to high levels of corruption. This is in turn a major obstacle to regional social and economic development, due in part to its ability to finance criminal acts and skew market behaviour. Despite this threat, only 45 percent of banks communicate their policy on this issue. This compares unfavourably with our Global Peer Group who all disclose their policy.

Does the company conduct a KYC (“Know Your Customer”) or customer risk aversion assessment before selling any financial or investment product to the customer?

Following the subprime mortgage crisis, banks globally are becoming increasingly concerned about growing customer indebtedness amid deteriorating economic conditions. In this context it is a concern that only 16 percent of the banks in our ASR™ universe provide details of their policy to assess the lending risks before a product is sold. Increasingly, banks are also reducing their exposure to industries with a high reputational risk. Even amongst our ASR™ Global Peers, only Standard Chartered already has a clear KYC policy in place.

CN 22%

HK 7%

ID 6%

IN 10%KR 14%MY 6%

PH 6%

SG 5%

TH 11%

TW 13%

SUSTAINABILITY BY COUNTRYKorean and Malaysian banks lead their Asian counterparts in ESG reporting. Malaysian banks scored particularly strongly in Governance and are competitive with their neighbours in Thailand and Singapore in this regard. This can be linked to Bursa Malaysia’s role in enhancing governance standards in publicly listed Malaysian firms, and the drive to elevate Malaysia’s governance rank at the international level. Korean banks performed particularly strongly in the General and Social categories, led by the well-respected Daegu Bank and Shinhan, which occupy the top two spots on ASR™ scoring in this sector. The 100% score in the General category highlights that Daegu Bank takes it’s reporting very seriously. Contrary to most of the banks, Daegu Bank delivers very detailed environmental data (including electricity and water consumption and greenhouse gas emissions). Overall, the average level of environmental disclosure is very poor among banks, potentially reflecting the dangerously myopic view of most bankers that their operations have a low level of impact on the environment.

ASR™ BANKING RANKINGSThe scores for the 63 Asian banks range widely. Although the performance of the leading bank, Daegu Bank, keeps pace with its global peers, overall the performance of this sector is skewed towards the low end with almost all of the banks scoring under 50 percent. Across the ASR™ categories, banks unsurprisingly score best in the Governance category, which can be linked to the developing regulatory environment in Asia. Even poor performers such as China Development Bank, which scored zero in the other areas, scored over 15 percent in this area. Low scores in the Social category, particularly in relation to banks’ communications with consumers regarding financial products, is a concern given the importance of responsible lending to the long term sustainability and growth of a bank’s balance sheet.

LEADER BEST PRACTICES The 100% score in the General category highlights that Daegu Bank takes its reporting very seriously. Contrary to most of the banks, Daegu Bank delivers very detailed environmental data (electricity and water consumption, greenhouse gas emissions etc).

RECOMMENDATIONS FOR INVESTOR ENGAGEMENT:

The subprime crisis demonstrated how irresponsible lending practices can significantly impair economic growth and financial stability. Investors are right to demand an open and transparent approach to a bank’s lending policy. Used in tandem with traditional credit risk analysis, this approach will also inform investors about a bank’s understanding of the potential reputational risks of its financing activities.

Given the focus on lending activities, we recommend investors call for banks to have separate committees for ‘sustainable lending’ and ‘operational sustainability’, both reporting separately to the Board and the Board’s Risk Committee.

ENVIRON.

SOCIAL

GENERAL

GOVERN.

14 4 9 84 4 76 4 3No. of Companies

CN HK KR SGID MY THIN PH TW

ASR

™



AVERAGE ASR™: 28%


REAL ESTATE

As defined by Global Industry Classification Standard (GICS), the 42 companies in the real estate sector represent developers, operators, managers and REITs. The total free float market capitalisation of our universe is US$214 billion. Although the universe is made up of companies in six countries in Asia, large listed companies in China and Hong Kong dominate this sector, with 81 percent of the free float market capitalisation coming from these two countries.

• CSR reporting in the real estate sector is still far from the norm with only 31 percent of companies analysed publishing a quality sustainability report and 17 percent of companies using reporting guidelines such as GRI to help structure their reports. • Although reporting points to growing company awareness of sustainability issues, few companies appear to have a structure in place to manage ESG issues. Only two companies had a direct named contact for ESG queries and only four companies had a Committee or Board member responsible for sustainability issues.

• Only 19 percent of Asia real estate companies have a published health and safety policy, not all of which were deemed comprehensive. A mere five percent highlight health and safety risks and objectives, making real estate the worst performing sector in this regard. • Only 10 percent of real estate companies in Asia complete supply chain audits and the same low proportion take ESG standards into account when they select suppliers. • Real estate companies do not display a proactive approach to informing customers, and only 14 percent have a comprehensive product responsibility code.

• Energy dominates the agenda for real estate companies in Asia with the highest response rates for questions relating to energy consumption initiatives and the development of energy efficient technologies. • Reporting on water and waste is far behind that of disclosures of energy consumption, with only ten percent and seven percent of companies in Asia respectively responding on these two issues. • Although climate change is a global issue, only 12 percent of Asian real estate companies report their greenhouse gas (GHG) emissions data. Out of the five companies that publish their GHG emissions data, only three respond to the CDP and two of these make the data public.

• 93 percent of the real estate companies analysed have a comprehensive corporate governance policy that covers key areas such as the structure and function of Committees, role of the Board, accountability and role of the CEO and Chairman. • The strength in governance overall is influenced by the many Hong Kong companies that scored comparatively well in this category, with an average of 65 percent. However, lack of transparency in key areas by Hong Kong firms exists and stronger reporting can be found in Singapore, where real estate companies achieved the highest average score of 72 percent.

Average Score: 17% ASR™ Best in Class Asia: City Develop-ments, 92% Global Peer: British Land, 91%

Average Score: 18% ASR™ Best in Class Asia: City Develop-ments, SG, Ayala Land, PH, 75% Global Peer: Lend Lease, AUS, 94%

Average Score: 14% ASR™ Best in Class Asia: City Develop-ments, SG, 92% Global Peer: Lend Lease, AUS, 95%

Average Score: 58% ASR™ Best in Class Asia: City Develop-ments, Keppel Land, Hang Lung, 84% Global Peer: Lend Lease, 92% British Land, 92%

ENVIRONMENTGENERAL

GOVERNANCESOCIAL

ASR™ KEY FINDINGS


SECTOR SPECIFIC INSIGhT Responses to two of the ASR™ Real Estate Sector Specific Questions focus on the development of sustainable or ‘green’ building in the region and shed light on how companies in Asia are approaching the risks and opportunities.

Does the company invest in innovations/research into green building technology?

This is an important topic as real estate companies begin to differentiate their developments by their environmental sustainability, alongside traditional drivers of investment returns such as location and building grade. Green building certification and features can help attract and retain multinational tenants and buyers in developing Asian cities. Importantly, as building inputs such as water and energy become increasingly costly both during their construction and operation, investment in sustainable building should see improving returns.

Does the company have buildings that are ‘Green’ (i.e. LEED/BREEAM certified; this can include newly built or refurbished buildings)?

36 percent of the real estate companies we analysed have already completed developments in Asia that have passed internationally certified green building standards. This figure is surprisingly high given the poor environmental performance of these companies overall and hints to the fact that environmental issues are being factored into real estate development marketing decisions even if a complete view of resource utilisation is not yet being clearly communicated to real estate portfolio managers.

CN 28%

HK 53%

IN 4%

SG 13%MY 1%

PH 1%

SUSTAINABILITY BY COUNTRYAlthough the Philippines and Malaysia appear to lead ASR™ scores in Real Estate, this is misleading as only one real estate company for each of these countries was analysed. Singapore companies, which represent 13 percent of our real estate universe, are leaders on ASR™ disclosure. Their strength in governance is supported by improving environmental standards, influenced by strong government commitments relating to sustainable building with incentives and certification through the Building Construction Association’s Green Mark scheme. Given the dominance of China and Hong Kong in this sector, their comparative performance deserves further comparison, and across all categories China lags behind. The low ASR™ performance of these two countries overall is reflected by the fact that, if their scores are removed, the average ASR™ for this sector jumps significantly, from 28 percent to 38 percent.

ASR™ REAL ESTATE RANKINGSThis sector has the widest range in sustainability performance of all 12 sectors analysed. Subsequently, although its overall poor performance places it in joint tenth place, the sector also contains one of the top ASR™ scorers, City Developments. Across the ASR™ categories, we find the strongest average score of 56 percent in corporate governance, which can be linked to the developing regulatory environment in Asia. Buildings are highly resource intensive and it is therefore surprising that real estate companies achieve a low average score of 14 percent on Environmental reporting.

LEADER BEST PRACTICES City Developments delivers detailed sustainability reporting of its Singapore business annually based around the GRI’s G3 guidelines. It is externally audited to provide assurance of the accuracy of its contents and maintain its B+ rating by GRI.


Energy efficiency initiatives are at the backbone of the business case for sustainable building in Asia and should be a focus of investors’ questions on how property portfolios can be positively impacted by benchmarking and target setting efficiency savings.

Investors should consider how real estate companies approach other resource considerations including the pressing issue of water security. Pricing of water is expected to increase in Asia and the commercial viability of resource efficient green buildings will no doubt increase. Sustainable building could be seen as a way of increasing yields and future proofing these long-term assets.

ENVIRON.

SOCIAL

GENERAL

GOVERN.

CN

13

HK

0 316

KR SG

1

ID

0

MY TH

07

IN

1

PH TW

0No. of Companies

0

10

20

30

40

50

60

70

80A

SR™

ASR™


0

5

10

15

20

25

30

35

40

45

50

CN HK ID IN KR MY PH SG TH TW


AVERAGE ASR™: 42%


TELECOMS

Comprised of telecom service and wireless telecommunication firms as defined by GICS, our universe of telecoms is made up of 23 companies from ten countries with a total free float market capitalisation of US$196 billion. This review provides a snapshot of where key Asian telecom firms stand as global leaders, followers or laggards on ESG, although the upcoming Responsible Research sector report will provide more guidance on the issues.

• With an average score of 34 percent, the highest of all sectors, telecom companies are leading the way in Asia regarding general sustainability reporting. Over half of the companies disclose material ESG information that is relevant to their business models. • ASR™ leaders mainly drive this good performance and sustainability reporting is far from automatic for the majority of Asian telecom companies. Indeed, only 30 percent of the firms in our universe have a Board member or Committee dedicated to sustainability and only 13 percent have a direct contact for ESG issues.

• The sector is improving communication with its employees, consumers, suppliers and communities. Half of the companies have an HR policy and two-thirds have published a clear benefit statement. Although one-third have a comprehensive suppliers/ business partners policy, only four percent conduct supply chain audits that assess their compliance to ESG standards and risks to company.• A service responsibility code and customer focused initiatives are important in developing a relationship with consumers, particularly in the increasingly competitive marketplace of telecom service providers. It is surprising then that four out of ten companies communicate on this issue.

• Nearly half of the surveyed Asian telecom companies have what is considered to be a clear, comprehensive and detailed environmental policy. • Initiatives to reduce energy consumption and develop energy efficient technologies are high on the agenda with 74 percent and 59 percent response rates respectively. However, disclosure of resource utilisation including energy, water and GHG emissions remain low, hovering around 23 percent. Therefore although initiatives are in place, companies appear to be slow to report on these key environmental areas.

• Telecom companies in Asia have a strong approach to corporate governance. Ninety-six percent issue a corporate governance report and 87 percent have a policy in place that articulates corporate management procedures at the Board level.• Although Board member experience is articulated by 91 percent of companies, the independent representation on the Board remains low with only 39 percent of companies having greater than 50 percent independence.

Average Score: 34% ASR™ Best in Class Asia: China Mobile, CH, Chunghwa Telecom, KR, 85% Global Peer: Vodafone, UK, 92%

Average Score: 38% ASR™ Best in Class Asia: DiGi, MY, 81% Global Peer: British Telecom, UK 96%

Average Score: 24% ASR™ Best in Class Asia: Chunghwa Telecom, KR, 100% Global Peer: British Telecom, UK, 100%

Average Score: 66% ASR™ Best in Class Asia: SingTel, SG, 92% Global Peer: Vodafone, UK, 94%

ENVIRONMENTGENERAL

GOVERNANCESOCIAL

ASR™ KEY FINDINGS


SECTOR SPECIFIC INSIGhT Responses to two of the ASR™ Telecoms Sector Specific Questions focus on how companies in Asia approach the issue of data protection as well as the opportunities presented by underserved markets in the region.

Has the company identified underserved markets/opportunities and developed products to strategically target these markets (e.g. microfinance)?

Telecoms actively support community engagement, with 96 percent of all companies allocating money to community investment and 76 percent effectively monitoring that investment. However, ASR™ has identified that currently only 47 percent of our universe of 23 companies is strategically targeting underserved markets in Asia as a market opportunity.

Does the company have a policy in place to not release its customer database to a third party?

Telecom companies globally are aware of the need to assure their customers that their data is protected and not being used as an asset to share to a third party. All global peers have communicated their policy towards data sharing, and 47 percent of our sector universe in Asia have also disclosed their policy on this important issue. The importance of this issue has being played out in Thailand where The National Telecommunication Commission has instructed private operators that their 3G licences could be taken away from them if they do not abide by consumer protection laws.

CN 13%

HK 13%

ID 9%

IN 9%

KR 13%

MY 13%

PH 9%

SG 4%

TH 4%TW 13%

SUSTAINABILITY BY COUNTRYKorea leads the country performance in the telecom sector, with particularly strong performances from both SK Telecom and LK Corporation in the Social section. However, LG Telecom’s score was negatively impacted by its reliance on the disclosures from their parent, LG Group. Taiwan, Malaysia and Hong Kong are all characterised by having one leading company with a number of weaker followers. Despite the heterogeneity of ASR™ scores companies, the strongest reporting is in Governance due to the development of the regulatory environment in countries where the companies are listed. The weakest scores predictably come from China and the Philippines, with particularly poor environmental reporting from Chinese companies.

ASR™ TELECOMS RANKINGSThe sector’s high average score results from a strong cohort of leading companies; one quarter score higher than 50 percent. Behind these leaders are a group of strong followers. One example is Taiwan Mobile, which would move from the middle of the pack to a top five position if it translated its disclosure into English. Telecom companies show the widest range of performance in the Environment category with the laggards failing to score at all and an average sector score of 24 percent. This average drops to a dismal 15 percent if the three leaders in this category are removed.

LEADER BEST PRACTICES Digi reports close engagement with supply partners to ensure compliance with their Supply Chain Practices (SCP) requiring suppliers to agree and sign off before contracting, followed up by regular monitoring through their Supply Chain Health, Safety, Security, and Environment Assurance (HSSE-A) program.


Evaluate the approach a company takes to protection of customer information in order that it does not suffer reputational damage from selling or sharing data and does not risk losing it’s license to operate.

Companies should be able to demonstrate that they understand not only risk mitigation aspects of ESG issues but also use their ESG analysis to differentiate their product offering and access currently underserved markets in Asia.

ENVIRON.

SOCIAL

GENERAL

GOVERN.

3 3 32 3 112 2 3No. of Companies

ASR

™



AVERAGE ASR™: 37%


UTILITIES

The Utilities sector is comprised of 30 companies from seven countries with a total free float market capitalisation of approximately US$136 billion. It is made up of energy, gas and water utilities, as well as independent power producers and energy traders as defined by GICS.

• Sustainability reporting is becoming commonplace, with 83 percent of Utilities making some form of report publicly available through print or digital media. However, only 53 percent delivered reporting that was comprehensive and detailed with a mere 17 percent used a third party auditor to verify their submissions.• Improved reporting highlights a growing awareness of ESG issues yet the management structure for these issues is still evolving with only three utilities companies providing a direct named contact for ESG queries and only 17 percent having a board member or committee responsible for ESG issues.

• Utilities are a leader on certain aspects of Operational Health & Safety (OHS) and 63 percent make their OHS policy public. That said, only 40 percent had an exhaustive policy that covers all OHS areas. • Just over one-third of utilities have comprehensive customer responsibility codes and a similar number have customer or end-user environmental initiatives, showing an emerging level of engagement.• Only ten percent of Asian utilities have procurement guidelines or supply chain policies. Those that do tend to weigh material ESG factors in their choice of suppliers and hold their suppliers to quantifiable standards.

• Many Utilities appear limited in their approach to environmental issues with only 40 percent having what could be considered a clear, comprehensive and detailed environmental policy. Approximately half of the utilities follow an internationally recognised environment management system such as ISO 14001. • Assessed Utilities lead the other sectors on basic environmental metric disclosure, although only 40 percent provide data on the generation efficiency of their plants and less than 25 percent show a clear and comprehensive breakdown of their generation portfolios and related key performance indicators. • 70 percent of companies allocate resources to develop energy efficient alternative energy technologies.

• Utilities often lack independent representation on the Board. Although nearly three quarters of companies have more than 30 percent of independent board members, only 25 percent of companies have greater than 50 percent independent representation at the Board level. • Few Utilities have an independent nominations Committee and many lack a clear and transparent nominations process. Few Asian Utilities disclose a clear whistleblower channel, placing it behind most other sectors on this key measure of accountability. • Only one-third of Utilities have a management system in place that comprehensively covers all risk areas.

Average Score: 31% ASR™ Best in Class Asia: China Light and Power, HK, 85% Global Peer: E.ON, DE, 92%

Average Score: 32% ASR™ Best in Class Asia: China Light and Power, HK, 84% Global Peer: E.ON, DE, 84%

Average Score: 29% ASR™ Best in Class Asia: China Light and Power, HK, 80% Global Peer: PG&E, US 100%

Average Score: 51% ASR™ Best in Class Asia: China Light and Power, HK, 88% Global Peer: Origin energy, AU, 88%

ENVIRONMENTGENERAL

GOVERNANCESOCIAL

ASR™ KEY FINDINGS


SECTOR SPECIFIC INSIGhT Responses to two of the ASR™ Utilities Sector Specific Questions shed light on how companies in Asia are approaching the risks and opportunities.

Does the company have in place a security system that will ensure that customer data is protected? Does the company have in place a policy not to sell their customer database to a 3rd party?

In our sector specific analysis only four utilities companies disclosed having systems in place to protect customer data from unauthorised third parties and only one company has a policy not to sell or share customer data to third parties. Given the amount of data utilities tend to accumulate about their customers, in this age of identity theft and fraud it appears almost negligent to not have measures in place to protect customer data.

Does the company engage an independent assessment of the environmental impact of its new plants?

Of the 30 companies we analysed, only one utility company has a stated policy in place to ensure that an independent third party will carry out a thorough and transparent assessment of the environmental impact of any new plants or facilities. This raises questions about industry reputational risk and accountability towards their key stakeholders, be it investors, regulators or the community they seek to build any new facility in. The absence of such assessments robs stakeholders of key information necessary to making decisions about their interests and those of their communities.

CN 41%

HK 26%

ID 3%

IN 14%

KR 7%

MY 7%PH 2%

SUSTAINABILITY BY COUNTRYOne of the more interesting observations from the data is the gap in scores between non-Chinese and Chinese utilities, with Chinese Utilities making up the majority of the lowest performing companies. Meanwhile Hong Kong, Indian and Korean utilities include some of the top performers in the ASR™. Hong Kong utilities lead on Governance scoring, highlighting the SAR’s strong regulatory environment and efficient enforcement. Korean companies perform particularly well on Environmental and Social disclosures, again due to strong legislation dictating environmental policies and procedures.

ASR™ UTILITIES RANKINGSASR™ utilities firms and selected global utilities companies are summarised in the table below. As seen, there is a wide gulf between the leaders and laggards in the utilities sector. Across the criteria, the leading companies recognise the materiality of Environmental and Social, which is reflected in high scores that are comparable with their global peers. Although Governance scores are weaker, the difference between leaders and laggards in this category is reduced by both regulatory and shareholder pressure. These combined forces guarantee at least minimal scores even in the least regulated markets with the poorest enforcement.

LEADER BEST PRACTICES CLP Group has a comprehensive CSR report that includes a detailed breakdown of its power generation portfolio and specific KPIs for each facility. From a supply chain perspective, CLP Group works with partners and holds them accountable for ESG standards through supplier audits providing support on sustainability matters when necessary.


Investors should push for greater transparency and ESG disclosure from utilities specifically regarding the KPI’s of their power generation facilities and the breakdown of their generation portfolios.

Environmental considerations should remain at the forefront of investors’ minds and the ability of power plants to access a sustainable source of water is key to continued operation.

ENVIRON.

SOCIAL

GENERAL

GOVERN.

CN

11

HK

5

KR

2

ID

1

MY

3

IN

5

PH

3

0

20

50

10

40

30

60

No. of Companies

ASR

™

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Their clients, mostly active asset owners and asset managers who have signed on to the UN backed Principles for Responsible Investment find that annual reports, investment banking analysts reports and their own financial models do not cover all risks to earnings. In order to deliver superior long-term alpha, fulfil their fiduciary duties and reduce volatility in their portfolios these investors require deeper thinking and analysis of the non-financial risks which can affect performance of their holdings.

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