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Transcript of Paul wenman
+44 (0)7720 416363
InvestAssure
Monitoring Asian Corporate ESG performance
on the Web
Paul Wenman
TBLI CONFERENCE™ EUROPE 2011
Workshop 9 – Emerging Markets: Asia
www.source-asia.net © SourceAsia Ltd 2010
SourceAsia
SourceAsia has been providing advice and support for responsible sourcing
and investment in Asia since 2004.
We help manage reputational, commercial, financial and legal risks in Asian
supply chains, investment portfolios and business partnerships.
Sister group CSR China has been a leading web source of information on
corporate responsibility in China since 2005.
Hong Kong Partner Pacific Risk Advisors supports ethical private equity and
property investments in Asia
Founded by Paul Wenman:
27 years’ experience in environmental management and corporate responsibility
15 years with ERM (Environmental Resources Management)
4 years as Head of Corporate Responsibility Services with Ernst & Young
www.source-asia.net © SourceAsia Ltd 2010
ESG Risk Management
Commercial
Risks
Financial
Risks
Legal
Risks
Reputational
Risks
Who am I buying from?
Producer
Product
What am I buying?
Process
How was it made?
People
Who made it?
Partner
Who am I in business with?
Environment
Natural Resources
Occupational H&S
Labour Conditions
Human Rights
Communities
Corruption and Fraud
Product Safety
Business Ethics
www.source-asia.net © SourceAsia Ltd 2010
ESG Risks in Asia
There are ethical risks to doing business in Asia Environment and natural resources
Occupational health and safety, labour conditions
Corruption, fraud and business ethics
Product safety
What can you do? Due diligence
Compliance audits against codes and standards
Training – HR, EHS management, operational control, productivity
ESG indices only for large companies and don’t reflect real performance
Audits and training are not enough What happens after an audit has been completed?
How do we know if there is an incident or stakeholder allegation?
How do you get assurance if you are dealing with hundreds or thousands of Asian companies?
InvestAssure provides Added Assurance through web monitoring
www.source-asia.net © SourceAsia Ltd 2010
Responsible Investments
How to Get Assurance?
Screening Corporate Governance - accountability to shareholders and other stakeholders
- board and management structure and responsibilities
- integrity and ethical behaviour
- policies, codes, guidelines
- processes, internal controls and procedures
- performance and risk management systems
- disclosure, transparency, audits
Monitoring ESG Performance - company self-disclosures – ESG reports
- government databases and records
- web reports of incidents and allegations
+
Typical
Rare
www.source-asia.net © SourceAsia Ltd 2010
InvestAssure
InvestAssure provides ESG monitoring and support for investments Tracks 4,000 companies in East and Southeast Asia
Monitors web news and blogs
Identifies reports of EHS incidents, poor labour conditions, unethical behaviour, corruption and fraud
Clients include Norwegian Government Pension fund, ANZ bank
InvestAssure is an early warning system Customised web monitoring relating to a portfolio or supply chain
E-alerts and regular reports available online
InvestAssure is a risk assessment tool
Screening of potential investees, JV partners or suppliers – assessing significance of web reports in relation to a core business risk framework
Due diligence, providing inputs to help focus audits and investigations
www.source-asia.net © SourceAsia Ltd 2010
Typical Risk Management
New companies
Investment
portfolio
Customer base
Supply base
Ejection
?
?
?
DUE DILIGENCE
COMPLIANCE AUDIT
RISK
MAJOR INCIDENT
Significant risks are taken after due diligence, despite audits, because little reliable
information is available to provide assurance of performance and behaviour relating to
ethical, social, environmental and governance standards. This can result in a major incident
which causes business impacts (reputational and/or financial, legal or commercial), even
after ejection of the guilty partner
Business impacts
Business expectations
www.source-asia.net © SourceAsia Ltd 2010
InvestAssure
Risk Management
New companies
Investment
portfolio
Customer base
Supply base
Ejection
InvestAssure provides a database of monitoring information on incidents and allegations of
unethical corporate performance, to feed risk assessment and assurance processes. This
collates and assesses the reports and opinions of third parties, such as NGOs,
communities, employees and local authorities, as identified from searches of web news
sites, blogs and other publications
Business assurance
Business expectations
InvestAssure
DUE DILIGENCE
COMPLIANCE AUDIT
INCIDENTS, ALLEGATIONS
COMPLIANCE, PERFORMANCE
www.source-asia.net © SourceAsia Ltd 2010
The InvestAssure Process
InvestAssure
Database
Local verification
Topic Category
Alert Level
Expert review
National news publications
Regional NGOs and blogs
English, Chinese, Asian
Web searches
Web Access
Historical Analyses
Monitoring Reports
e-Alerts
Client Outputs
www.source-asia.net © SourceAsia Ltd 2010
InvestAssure Case study
ANZ
The bank also monitors for ongoing developments to ensure early identification of issues and works closely with the client to mitigate any risks that arise. The primary source of information used is SourceAsia’s InvestAssure database which monitors for environmental, health and safety, ethical and social incidents and allegations
• ANZ chose InvestAssure because of its clear Asia-Pacific focus which includes monitoring in English, Mandarin, Japanese and a range of other languages. It also monitors a greater number of sources than its competitors given it encompasses Factiva as well as web based information
The InvestAssure data is used to inform ANZ’s relationship managers when an issue has arisen with their client. Depending on the severity of the allegation ANZ may choose to raise it directly with the client and help them to manage the issue
ANZ is a top four Australian bank with
operations across Asia and the Pacific in 14
markets.
ANZ aims to work with corporate customers to
ensure they manage their social and
environmental risk. This includes screening
prospective clients and also conducting
annual reviews of their operations
www.source-asia.net © SourceAsia Ltd 2010
InvestAssure Data Analysis
Alerts in 2009-2011
We recently analysed our database for the last 2 years
Over 1000 ‘alerts’ were issued, in relation to 520 companies
65% of these alerts warranted action by our clients, in our view, e.g.
further investigation, engagement or focused monitoring
www.source-asia.net © SourceAsia Ltd 2010
Companies
Nearly 15% of the Asian companies we track had at least one alert
in two years.
Over 10% of companies had one alert or more in 2010 alone.
www.source-asia.net © SourceAsia Ltd 2010
Sectors
50% of all alerts to our clients related to the Manufacturing sector:
60% of manufacturing alerts came from Chemicals, IT and Metals
12% from Food and Beverage, 7% from Paper and Board
25% of alerts came from the Mining sector:
two thirds of these were from Metals Mining
one third from Coal Mining
www.source-asia.net © SourceAsia Ltd 2010
Countries
China was the key source of alerts:
over 50% of all alerts came from China
65% of significant alerts came from China, i.e. warranting further action.
www.source-asia.net © SourceAsia Ltd 2010
Impacts
Nearly 30% of alerts were related to Occupational Health and
Safety, 25% to the Environment and 20% to Corruption, Fraud and
Business Ethics.
Only 7% of alerts related to Labour Conditions.
www.source-asia.net © SourceAsia Ltd 2010
Implications
Tip of the Iceberg?
Have we exposed only the tip of the iceberg?
Many incidents do not reach the web or are not even reported at all.
The real rate of non-compliance and the real risks inherent in your
investment portfolio or supply chain are likely to be greater.
www.source-asia.net © SourceAsia Ltd 2010
Implications
Labour Conditions
Relatively few alerts for Labour Conditions - is the media focus on
this issue misleading?
Some types of incident are reported more reliably than others.
Environmental impacts and fatalities are ‘tangible’ and usually end
up in the media eventually. Hence the high rate of alerts for these
categories.
Allegations regarding labour conditions are harder to prove and
depend upon whistleblowing or under-cover investigations – hence
the lower rate of alerts.
So how much unacceptable labour management is hidden in
your supply chain or investment portfolios?
www.source-asia.net © SourceAsia Ltd 2010
Implications
China Risky, India Safer?
With so many alerts from China, is India a ‘safer’ business
environment?
China is top of the table because:
1. There is so much more manufacturing and mining in China (China last
year accounted for 20% of the world's manufacturing output, about 10
times more than India.)
2. Foreign direct investment in China is about 4-5 times greater than
India – hence much greater interest in monitoring investments and
suppliers.
3.There is much more manual labour in India and so the ‘underreporting’
of labour conditions is likely to affect it to a greater extent.
If India is in your portfolio or supply chain, then the relative
lack of reporting could be a concern not a comfort.
www.source-asia.net © SourceAsia Ltd 2010
SPECIAL FOCUS: WATER
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Water
Media focus on Mines
Alerts – when we notify clients of a significant news report
8% of all InvestAssure alerts related to water
Media focus is greatest on large mining projects – so 46% of water
alerts related to mining (Papua New Guinea, Australia and China).
But 75% of most serious alerts related to industrial pollution.
Incidents and Allegations – the original source of a news report
About 50% of reported water incidents or allegations related to
Industrial pollution. About 35% to Mining activities.
About 75% of water incidents and allegations occurred in: China
(36%), Australia (20%) and India (18%)
Mining (and hydro-electric) incidents generated 67% more alerts per
incident than industrial pollution.
www.source-asia.net © SourceAsia Ltd 2010
Water Incidents and Allegations Hydro Industrial Pollution Mining Pollution Industrial Use TOTAL
Africa 2% 2%
Australia 5% 15% 20%
China 3% 24% 9% 36%
India 14% 2% 2% 18%
Indonesia 3% 3%
Japan 3% 3%
Laos 3% 3%
Malaysia 3% 3%
Papua New Guinea
7% 7%
Taiwan 5% 5%
TOTAL 11% 51% 36% 2% 100%
www.source-asia.net © SourceAsia Ltd 2010
Water Alerts Hydro Industrial Pollution Mining Pollution Industrial Use TOTAL
Africa 6% 6%
Australia 3% 14% 17%
China 2% 19% 13% 34%
India 10% 1% 1% 12%
Indonesia 2% 2%
Japan 2% 2%
Laos 2% 2%
Malaysia 5% 5%
Papua New Guinea
16% 16%
Taiwan 3% 3%
TOTAL 15% 37% 46% 1% 100%
www.source-asia.net © SourceAsia Ltd 2010
Responsible Investments
Monitoring - Key to Assurance
Investee
Screening
Corporate Governance - accountability to shareholders and other stakeholders
- board and management structure and responsibilities
- integrity and ethical behaviour
- policies, codes, guidelines
- processes, internal controls and procedures
- performance and risk management systems
- disclosure, transparency, audits
Investee
Monitoring
ESG Performance - company self-disclosures – ESG reports
- government databases and records
- web reports of incidents and allegations
+
Typical
Rare