Asia is catching up to the rest of the world in CSR, but incentives to improve performance are not yet strong enough.
By Mia Overall
The social and environmental impacts of the natural resource sectors -- oil, gas, mining, hydropower and forestry – are huge. These projects can alter entire landscapes and ecosystems, and generate pollution. Dams displace up to tens of thousands of people. Significant portions of these natural resources are in the Asia Pacific region, and Asian companies manage a lot of this business.
So, how well are these companies demonstrating responsible business practices with respect to their western counterparts? On things like corporate disclosure, participation in the Global Compact, membership in “responsible” industry associations and management of ESG risks, they aren’t far behind.
A bigger gap appears with investors, who still have a higher tolerance for ESG risks than western banks. The final challenge is whether the Asian context gives companies strong enough incentives to increase social responsibility and how to take this further.
Social Responsibility Among Asian Companies
One indicator of corporate responsibility is participation in voluntary sustainability initiatives, such as the UN Global Compact, which has been relatively effective in capturing the attention of Asian companies.
According to the Global Compact’s 2011 Implementation Survey, across all sectors, nearly three times as many Asian businesses have signed on as their North American counterparts, but only about a third as many as European businesses. They are also much more likely to participate in local networks than both North American and European companies.
The countries with the strongest participation are Japan, China, India and Korea, where participation among natural resources companies is on par with the U.K. and Canada. In both western and Asian markets, a number of oil and gas companies have signed on. But it’s also strong in Korea and Indonesia and Thailand, where the number of oil, gas, mining and forestry companies is still greater than or equal to participants from the U.S.
Of course, there are big disparities across the region, with generally stronger participation from the oil and gas and forestry than from mining. In fact, participation is noticeably weak in key mining countries like China, the Russian Federation and Kazakhstan considering the size of the sector there.
CSR Reporting In Asia Growing
There is a lot of buzz in Asia about ISO 26000, the standard for social responsibility.
Its non-certifiable nature makes it difficult to measure implementation or compare it to other regions, but it must be noted that Thailand and China have prepared local language versions of the standard, and sponsored inexpensive training for companies to raise awareness and provide guidance on how business can be socially responsible
In terms of public disclosure, the number of CSR reports written by companies in the sector shows that Asia is only slightly behind North America, though both regions are lagging significantly behind Europe.
According to the GRI Sustainability Disclosure Database, Asian energy, mining, forestry and paper companies have published a total of 294 reports. North American companies have prepared 319, only a handful more, while European companies have prepared 612.
Asian Energy Companies’ Record On Reporting
Across all regions, the majority of these are from energy companies, including oil and gas. In this sector, Asian companies are actually far more transparent than North American companies, having prepared 215 reports against 160.
But transparency differs greatly between national and multinational companies. In their report, Promoting Revenue Transparency, Transparency International and Revenue Watch found that, compared to global companies, Asian national oil & gas companies are doing a poor job of reporting on any anti-corruption programs.
Half of the global laggards are from the Asia Pacific region.
With respect to the global average, Asian companies are performing worse on organizational disclosure of partnerships and subsidiaries, with the worst performers in China (CNOOC and CNPC). Asian companies were also among the worst performers globally on disclosure of country level financial data, transfers to governments and other operational info with CNPC, CNOOC, Inpex, PetroChina and Petronas as five of the six worst performers globally.
Another reference point is membership in industry associations like IPIECA and the International Council on Mining and Metals (ICMM) that are driving social and environmental responsibility. By joining, members make a commitment to improve on these issues. IPIECA has 29 member companies of which seven are Asian compared to 12 and eight from North America and Europe respectively. ICMM has 22 member companies with roughly equal membership from Asia, North America and Europe.
Comparing ESG Risks Between Emerging & Developed Markets
According to a Sustainalytics’ report that compares ESG risks in emerging markets to those of developed markets based on the Sustainalytics’ Global Platform, emerging market companies’ disclosure of relevant ESG policies and programs is rather poor.
But risks vary considerably from country to country.
In the Russian Federation, for example, worker health and safety issues are also a concern in the mining, oil and gas industries and strict environmental standards have not yet been imposed. Chinese companies have the lowest overall scores among BRICS companies and rank consistently low across most ESG indicators. Averaging ESG scores in each geographic region, the Asia Pacific region scores poorly, following Central and Eastern Europe, Latin America, and South Africa.
Still, some Asian companies are doing a very good job, such as PTT PLC in Thailand, which scored quite highly in the Asian Sustainability Report (ASR™) rating on transparency across a range of ESG indicators. Thailand is also the regional leader on corporate governance, according to a recent World Bank report, which indicated that it is approaching international best practice.
Responsible Investing Lags
An area where Asia is decidedly lagging is on responsible investing. The number of Asian banks and financial institutions that have signed on to the Equator Principles and UNPRI is extremely low compared to western institutions.
Nevertheless, an interest in responsible, sustainable investing in Asia is rising. But in this context, most of the attention is directed towards environmental issues, and less on social and governance issues. Disclosure of performance on human rights and corruption, for example, is much less. According to a report by EIRIS on the State of Responsible Business in Asia, this relates largely to the key drivers of responsible investment – global awareness of environmental issues and risks such as climate change and resource use.
While several of the global leaders such as Rio Tinto, ExxonMobil, Hess, and Occidental Petroleum are from the west, in many cases, western companies have a long way to go too. The Ceres The Road to 2020 – Corporate Progress on the Roadmap to Sustainability study, which examined mainly U.S. companies found that performance among oil and gas companies was generally poor, especially on human rights, including indigenous people and land rights.
Incentives To Improve Performance Not Strong Enough
As great as it is to see relatively strong participation in these initiatives by Asian countries, what does this really mean in terms of their actual performance?
As noted recently by Guardian Sustainable Business' Executive Editor Jo Confino, corporate participation is still often little more than green washing. The fact that voluntary initiatives have no enforcement power is a clear limitation of these initiatives, which often rely on public pressure and visibility.
In Asia there is less scrutiny by civil society and NGOs than in western markets, higher tolerance among investors for ESG risks, and lower levels of enforcement of social and environmental standards. Given this, it’s not clear that these initiatives give companies enough of an incentive to deepen their improvements
How To Increase Corporate Participation
Perhaps initiatives can tackle greenwashing while increasing corporate participation in initiatives and their real impact all at the same time by increasing the public visibility of corporate performance.
Using the Global Compact as an example, why not use its platform to showcase good performers or point out bad ones. Companies are required to submit a Communications On Performance (COP), but who reads these?
Actual performance could be made far more prominent. Asian governments looking to increase corporate responsibility in their countries may find tighter legislation to be effective, but they can also leverage both companies and investors by raising awareness of international standards, further disseminating guidelines, and shaping the practices of state owned or listed companies.
About the Author
Mia Overall is an independent sustainable business consultant based in Thailand. This article draws on research for a study titled “Responsible Business and Sustainable Foreign Direct Investment (FDI) in the Natural Resources Sector in the Asia Pacific Region,” commissioned by the UN Economic and Social Commission for Asia and the Pacific.