Ethical Performance
inside intelligence for responsible business


Third world companies match western peers

April 2009

Some third world businesses now match their counterparts in developed countries on environmental matters such as climate change, but still lag far behind on human rights and other social issues, says a new report.

The Review of ESG practices in large emerging market companies – published by the Sustainable Investment Research Analyst Network, a US Social Investment Forum working group – covers 40 businesses in ten emerging countries.

The companies were measured against key environmental, social and governance (ESG) criteria, including indicators on board practice, bribery, human rights, supply chain labour standards, health and safety, environment, climate change and biodiversity.

Altogether 93 per cent of the companies received only a ‘limited’ grade for their human rights policies, and none achieved a grade higher than ‘limited’ for human rights systems or reporting.

On the latter subject, 86 per cent showed ‘no evidence’ of disclosure. This was despite the fact that the exposure to human rights risks of the companies assessed was among the highest of the issues analysed.

On environmental topics such as climate change and biodiversity, however, the report, which was compiled in association Ethical Investment Research Services (Eiris) –- noted that some companies were ‘reaching grades on a par with developed country environmental leaders in environmental performance and systems’.

More than half had an environmental policy and system, with management response to climate change strongest among the resource companies. Half of the latter, however, had no evidence yet of climate change disclosure.

Public disclosure of key governance issues was high, including director remuneration (33 out of 40 companies) and the separation of the roles of chair and chief executive (28).

Most companies publicly disclosed some kind of anti-bribery policy, though the majority neither had a clear anti-bribery system nor showed evidence of reporting on any of their anti-bribery activities.

South African and Brazilian companies stood out overall as consistently having the highest assessments among the businesses sampled. Indonesian companies seem to have fared the worst.

The report concludes that while many of the top companies in emerging markets risk failing to meet the social and environmental  tests of international investors, ‘on the other hand, those emerging market companies that devote resources to CSR activities may well gain potential financial benefits from being seen as leaders among their peers’.

Stephanie Maier, head of research at Eiris, said: ‘Increasingly, responsible investors are focusing on emerging markets as they seek to diversify their equity investments.’

The countries assessed were Brazil, China, India, Indonesia, Israel, South Korea, Malaysia, Mexico, Russia and South Africa.

Sustainable Investment Research Analyst Network | Global | Sustainability

Further Information Markets Paper _ FINAL.pdf

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