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March 19, 2004
Corporate Social and Environmental Performance Varies Widely Across Far-East Asia
    by William Baue

A Kingsway survey finds differences in cultural norms and government policies in East Asian countries dictate diverse corporate social and environmental performance.


Socially responsible investment (SRI) in far-east Asia is still in its developmental stages, in part exemplified by the relative lack of research on corporate social, environmental, and governance performance in the region. Kingsway Fund Management (KFM), a Hong Kong-based SRI firm, is making strides to reverse this dearth of information.

Earlier this year, it released a survey assessing the social, environmental, and corporate governance performance of 138 companies in 8 East Asian countries, not including Japan. The report presents its findings aggregated by country: Hong Kong and China, Taiwan, South Korea, Singapore, Malaysia, Thailand, Indonesia, and the Philippines.

"The study is based on companies we visited in the normal course of managing our funds, and we came up with the survey simply because we had collected some data and we were encouraged by many people to make it public," said Patrick Choo, the Kingsway director who conducted the research.

The survey is based on Kingsway's proprietary SRI value added methodology, which scores companies under 19 categories divided into three sections: responsibility, sustainability, and values. The responsibility and sustainability sections assess categories such as corporate governance, community development, and gender equality in the former and energy management, pollution emissions, and resource management.

The values section comprises negative screens such as tobacco, military, gambling, and animal testing, which resulted in outright exclusions of only 50 companies from a starting universe of thousands of companies.

The 138 companies visited were those Kingsway considered "potentially suitable for inclusion in a SRI portfolio," and therefore did not attempt a market capitalization weighted approach as an academic study might take.

The study finds widely disparity in corporate social and environmental performance.

"There are three reasons causing the disparate results and they are somewhat related to each other: cultural norms, government policy, and level of economic development," said Mr. Choo.

Take Korea, for example, which ranked first in the sustainability section and last in the responsibility section, as well as in the overall SRI ranking "because of its serious corporate governance problems." A mere 12 percent of the Korean companies visited had no corporate governance concerns, in large part due to the continuing influence of political patronage and family controlled business empires, or "Chaebols" as they are called in Korea.

"In one case we encountered, the chairman of a group was charged with tax evasion and embezzling shareholder's funds," Mr. Choo writes in the report. "He received a suspended jail sentence and after paying a hefty fine, he continues as chairman of the same company."

"Yet at the same time one finds in Korea a very advanced corporate culture when it comes to ecological policies [which] has been largely due to Ministry of Environment initiatives to develop the green sector and legislation to gradually introduce recycling, reduce pollution, and reward efficient use of energy and other resources," Mr. Choo writes. "Many companies had environmental annual reports, including one from the very same company of the embezzling chairman mentioned above."

Similarly, Singapore ranked second in sustainability and seventh in responsibility. While not as stark a flip-flop, Malaysia ranked first in responsibility and fourth in sustainability, and Thailand ranked second in responsibility and sixth in sustainability.

SRI researchers have had a famously difficult time engaging Asian companies through questionnaires or phone interviews requesting information on social and environmental performance.

"We decided to get around the problem by not using questionnaires or even conducting surveys over the phone or e-mail, so we just went to visit them physically--it's much more expensive, but it gets the job done," Mr. Choo told SocialFunds.com. "The companies mostly don't feel we are 'wasting their time' [with queries about social and environmental issues], maybe just that a few of our questions are 'eccentric.'"

Also made famous by media accounts is the difficulty of practicing social investment in Asia due to the Western values underpinning the development of SRI.

"On the whole the East-West difference is rather overblown and for a long time used by governments and ultra-nationals to defend the status quo" on corporate social and environmental performance, Mr. Choo said. "I personally believe almost all SRI issues are universal and are not culturally based--it doesn't matter if Asians consider tobacco industries unethical or not, they are just plain bad and it doesn't take a PhD to understand this."

 

 
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