Inside Investor Relations - Volume 29 - ESG Metrics Matter

(Picture Source: GRESB)

So far for 2020, 305 Taiwanese companies have published their corporate social responsibility (CSR) reports as reported by the Taiwan Corporate Governance Center of the Taiwan Stock Exchange (TWSE). In 2019, 486 listed companies in the Taiwan market published a “CSR” report which is 144 more companies than had published reports five years ago for 2014. This increase was strongly supported by mandatory reporting issued by the TWSE in 2015 for some companies in Taiwan, but that still leaves over 1000 listed companies in Taiwan not yet publishing a report.

When asked why smaller companies are not publishing reports, the responses from corporates are similar – “we don’t have the resources” …” we aren’t required by regulators to do this” … “we don’t know where to start” … “does anyone actually read these reports?”. Getting started may initially seem like an overwhelming task but companies might find out that they already have a lot of this data available, it just hasn’t been gathered and consolidated in a way that can provide meaningful reporting.

The current standard used by most companies is still the Global Reporting Initiative (GRI) which is used by 74% of the largest 250 companies in the world. This framework provides guidance for disclosing metrics that are consistent across geography and industries. The standards are currently available in 12 different languages including Traditional Chinese – you can access the standards here. These standards are a good starting point to begin to assess what data your company is already tracking and what data you may need to start tracking in the future.

But does anyone actually read these reports? Yes… and no. Once your data is public numerous third-party researchers and data aggregators can consolidate this data to update their assessments of your company’s sustainability performance, thus making your information even more publicly accessible. (For more information on Third-Party ESG Reporting - please refer to our Inside IR Volume 6) Investors can then more easily find and access these metrics to use in their own investment analysis and ESG-integration. Many reports in Taiwan devote numerous pages to photos and descriptions of all of the charitable activities (Family Fun days and Beach Clean-ups!) that they participate in yet may only have a brief description of their supply chain policies. A managing director at a global asset manager describes the usefulness of this information from an investor standpoint, “While it might be nice to know what a footwear company does to strengthen community relations, understanding their supply chain management practices and how they source their materials is far more relevant for investors.”

Some metrics are better than others and what is material to one company may not be material to another. For example, it is important that all companies track and report on their GHG-emissions. Many investors need to track the carbon footprint of their overall investment portfolios, but the impact of these emissions is going to be much greater for an industrial conglomerate compared to a retail bank. BlackRock is one of the many investors that has been encouraging companies to report using SASB standards. The Sustainability Accounting Standards Board (SASB) has produced standards for 77 industries across 11 sectors. SASB standards and tools help companies to identify and manage financially-material sustainability issues and communicate these issues to investors. These standards offer companies guidance on what metrics investors find relevant for their industry as well as what additional disclosures they would like to see. For Hardware companies financially-material issues include Product Security, Lifecycle Management, Diversity, Supply Chains and Materials Sourcing. In comparison for Commercial Banks investors would like to see disclosure around Risk Management, Data Security, Financial Inclusion, ESG in credit analysis and Business Ethics. You can download current SASB standards here.

Data is simply just data and a starting point for companies and investors to better understand the issues that may be affecting the long-term sustainability of a company. Investors need to understand the whole picture rather than just looking at the data in isolation. A company might seem very gender-inclusive with a workforce that is over 50% female but the gender pay gap ratio or diversity of the board of directors may tell another story.

By providing additional disclosure and explanation behind the numbers, companies can help take away the guesswork for investors and explain metrics that at first glance may indicate a negative trend. For example, the employee turnover rate may be increasing because of poor management practices at the company, or it could be increasing as the company becomes more automated or efficient in its production process (this is one of the reasons why investors may look at voluntary turnover compared to overall turnover rates). Investors also want to see information on initiatives that go beyond compliance with local regulations (just doing what is required by law) and show more strategic long-term thinking on sustainability issues.

If your company hasn’t started publishing data on financially-material sustainability issues, now is the time to start. As competition for capital gets more and more difficult the companies that do not disclose meaningful data and are not having board level conversations about long-term sustainability, are going to get left behind.

Companies need to be well-prepared for the rise of sustainable investing by providing better disclosure of ESG information, increasing awareness and participation of the board of directors and management team, and improving communication with institutional investors. QIC has worked with many listed companies in Taiwan on improving their ESG communication and on attracting long-term focused investors. If you are looking for guidance in developing a successful ESG strategy, please reach out to us.

Contact: Yvonne Huang, yvonnehuang@qtumic.com