paul wenman

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[email protected]

+44 (0)7720 416363

InvestAssure

Monitoring Asian Corporate ESG performance

on the Web

Paul Wenman

TBLI CONFERENCE™ EUROPE 2011

Workshop 9 – Emerging Markets: Asia

mailto:[email protected]




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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




http://www.source-asia.net/




http://www.csrchina.net/

http://www.pacificriskadvisors.com/

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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







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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







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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







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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







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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







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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







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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







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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







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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







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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.







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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







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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.







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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.







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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.







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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?







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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.







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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.







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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%







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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%







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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





