Raising the bar on ESG in emerging markets

The Council on Ethics has been participating in a proactive engagement program on the emerging markets for several years. Dialogue addresses environmental, social and governmental (ESG) risks and opportunities in companies across fifteen different emerging markets.

Article from 2018 annual report

Since the beginning in 2009, the Council’s engagement consultant has conducted more than 600 face-to-face meetings in the engagement program, all with the aim to drive positive change based on constructive dialogue. The Council is actively participating in fifteen of these company dialogues, including companies from Brazil, China, The Philippines, Russia, South Korea, and Thailand.

From limited disclosure to open and systematic approach

One of the company engagement cases endorsed by the Council is the Philippine-based real estate development company Ayala Land. There have been four face-to-face meetings with Ayala Land in Manila.

At the first meeting in 2013, the company disclosure on ESG issues was very limited and the meeting was the first ESG-focused investor meeting that Ayala Land had experienced. Ayala Land claimed that accident rates were close to zero, but the safety statistics were not reported externally. Such a low number is unlikely in a construction company with thousands of employees and subcontractors in the Philippines, where many are low-skilled workers. So, the engagement initially focused on improving ESG transparency and disclosure and building up proper risk assessment and management structures.

Ayala Land was responsive to the feedback from the dialogue. The company has significantly expanded disclosure to investors and started working more systematically with safety as well as other ESG issues such as climate change. Safety statistics are now shared externally, and the engagement meetings feature detailed discussions on accident prevention.

Besides the focus on safety, Ayala Land has taken a strong interest in climate change and announced a progressive program for commercial properties to become carbon neutral by 2022. It has identified three strategies to achieve carbon reductions: provide passively cooled spaces, shift to renewables and clean energy, and establish and protect carbon forests.

Engagement in emerging markets continues

The scope of the emerging markets engagement program continues to expand. In 2018 each company was assessed against the UN Guiding Principles for Human Rights (UNGPs) and the engagement was matched according to the UN Sustainable Development Goals (SDGs).

The proactive engagement approach on risks makes the program well aligned with the expectations outlined in the OECD Guidelines for Institutional Investors. The Council will continue its engagement with companies in the emerging markets.