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In This Issue
Editor's Note
The Credibility of CSR Reporting and Environmental Disclosure
In the aftermath of the Zijin Mining chemical spill in early July and its nine-day delay in disclosure, eleven Chinese environmental groups issued a letter to the Hong Kong and Shanghai Stock Exchanges calling for greater environmental transparency for listed companies. The accident—declared the worst chemical spill in China in years—discharged 2.4 million gallons of toxic chemicals, contaminating the Ting River and poisoning 2,000 tons of fish stocks. This event brought to the forefront the issue of inadequate corporate disclosure on environmental and social issues.
In this issue, BSR’s Beijing Senior Manager Scott Chang describes how to decode Chinese corporate social responsibility (CSR) reports in order to assess their credibility and evaluate environmental disclosure. Additionally, James Gifford, Executive Director of the UN Principles for Responsible Investment (PRI), explains the third principle of the PRI—the importance of corporate disclosure—and its implications for investors.
Feedback and comments on this newsletter are encouraged and should be directed to Julie Zhu at jzhu@bsr.org.
In Depth
Decoding Chinese CSR Reports
BSR has a long-standing focus on helping companies improve their disclosure on environmental, social, and governance (ESG) issues through corporate responsibility reporting and other communications vehicles. We spoke with BSR’s Scott Chang to learn more about reporting and how to interpret company communications on ESG.
Learn more →
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Insight From the UN PRI
Principle 3: The Importance of Corporate Disclosure
Principle 3 is a commitment to ask investee companies to disclose appropriate and relevant environment, social, and governance (ESG) information, ideally in a systematic manner.
The idea behind Principle 3 is that without adequate disclosure by investee entities, it is not possible to implement Principle 1 (the integration of ESG issues) or Principle 2 (company engagement). Without an adequate level of detail about the ESG factors relevant to an investment, integrating ESG issues into investment decisions is impossible. Similarly, Principle 2 requires that signatories be active owners and engage with companies to address problems that have been identified. If there is insufficient disclosure, investors are unable to target their engagement activities in ways that focus on the most important issues.
Over the last three years, PRI signatories have sent letters to the chief executives of UN Global Compact (UNGC) participating organizations in order to applaud the leaders—those with particularly good practices—and to also challenge the non-conforming companies to submit their sustainability policies and threaten the rescindment of their full participant status if they fail to do so.
In 2009, the PRI conducted its second annual engagement with the UNGC: 44 companies were praised for producing high-quality sustainability reports deemed useful for investors. Recognized companies included China Ocean Shipping Group (COSCO) and the Korea Gas Corporation. A full list of companies can be found here. In addition, 48 percent (50 out of 105) of “laggard” companies in 2009 subsequently submitted their reports. Our 2010 engagement is currently taking place, and investors are in the process of contacting 130 companies.
In March 2009, a survey of PRI signatories and other global partners found seven out of ten major asset managers and institutional investors cited a lack of ESG disclosure as the key challenge to investing in emerging markets. The PRI’s Emerging Markets Disclosure Project was formed as an international initiative to improve corporate ESG or sustainability reporting in emerging markets. The project is also providing additional support to a number of PRI’s engagement clearinghouse activities (which is a web-based intranet providing signatories with a mechanism to share information and proposals on shareholder and other engagement activities they are conducting or would like to conduct with other signatories). For example, all Brazilian companies listed on Bovespa (the Brazilian stock exchange) are collaborating on eradicating slave labor in Brazil.
The work of PRI signatories and other groups to improve corporate disclosure is making an impact: More investors are now integrating ESG into their investment decision-making processes.
For more information, please contact Narina Mnatsakanian at narina.mnatsakanian@unpri.org
News to Know
- China Beijing Environmental Exchange and VantagePoint Partners Launch the First China Low-Carbon Index (June 10, World Market Media)
The China Low-Carbon Index was launched by the China Beijing Environmental Exchange and clean-tech specialist VantagePoint Partners, and is thought to be the first index to track China’s clean-tech sector and the first RMB-denominated low-carbon index.
- Annual Environmental Reports Disclosure Was Required for Listed Companies (July 14, Shanghai Securities News)
The Ministry of Environmental Protection published a notice calling for more stringent environmental verification management systems. This would require provincial environmental protection departments to push locally listed companies to disclose their annual environmental reports. Interestingly, the notice was released shortly after the Zijin Mining chemical spill.
- BASIC Meeting Ends Without Consensus on Climate Change (July 26, Science and Technology Daily)
In a recent meeting, Brazil, South Africa, India, and China (BASIC) tried to reach common ground on the maximum limit of carbon emissions for developing countries. The outcome of the meeting was supposed to be presented to the upcoming UN climate change conference—to take place in Cancun, Mexico, in December— but the meeting ended on Monday July 26 without a consensus.
- Regulation on Overseas Chinese-Funded Enterprises and Personnel Security Management Released (August 18, China News)
The Ministry of Commerce- together with six other governmental departments- released The Regulation on Overseas Chinese-Funded Enterprises and Personnel Security Management to strengthen the social responsibilities and security management of China’s overseas investments.
On the Horizon
Upcoming Events
- Clean Technology Investment World Asia 2010 (August 31 to September 3, Hong Kong)
- RIAA’s 7th International Responsible Investment Conference (September 14 to15, Sydney)
- 2nd Annual Sustainable Cities 2010 (September 27 to 30, Singapore)
- BSR Conference 2010: "Innovate. Integrate. Inspire." (November 2 to 5, New York).
Session Spotlight | Sustainable Investment in Emerging Markets: Action in China
Managing environmental and social (E&S) risks by investors in emerging markets is undeniably a challenge. Compared with developed countries, emerging markets have relatively primitive E&S legal frameworks, a low level of awareness about important E&S issues, and limited professionals with E&S management skills. However, according to research for the World Bank Group, investments by emerging markets equities managers that are run according to broad sustainability criteria have reached more than US$300 billion annually—nearly 10 percent of total equity investment in emerging markets. How do these investors view E&S in emerging markets, and how are investees identified? What are their E&S criteria when evaluating and holding investments in emerging markets, and how are E&S risks and opportunities measured? This one-hour conversation will feature prestigious investors sharing their investment practices and cases in China. Register now
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