Big firms turn focus on environmental, social governance

MANILA, Philippines - Some of the country’s biggest corporations are adopting environmental, social and corporate governance (ESG) standards as fund managers are incorporating extra financials into decision-making processes.

Global credit rating agencies have likewise incorporated ESG standards into their credit analysis.

SM Investments Corp. (SMIC), the listed holding firm of the Sy family, said more and more foreign investors are scrutinizing the companies they invest in by looking at their ESG and activities.

ESG standards are used to evaluate corporate behaviour with emphasis on corporate governance and sustainability and how this would affect the financial performance of companies.

In a recent interview with The STAR, SMIC investor relations head Cora Guidote said investors are becoming equally concerned about companies’ ESG efforts after the Enron scandal that rocked global markets.

She said there is strong emphasis on corporate governance.

The Enron scandal, which erupted in 2001, led to the bankruptcy of the Texas-based American energy giant and the dissolution of auditing company Arthur Andersen because of high-risk accounting practices, leading to the loss of billions of shareholders’ money.

In September, Moody’s announced it has incorporated ESG considerations into credit analysis, providing examples of how these considerations have been captured in its ratings, methodologies and research.

SMIC consultant for investor relations Timothy Daniels said investors are putting pressure on fund managers to put their funds in companies that give high regard to ESG.

The trend is becoming prevalent among European investors, he said.

As a result, companies need to publish their ESG initiatives.

SMIC published its ESG report for the first time this year.

“Good governance, social development and environmental consciousness are at the core of SM’s business practices. It recognises that adhering to ESG global best practices is a journey,” SMIC said in the maiden report covering 2014 initiatives.

Its ESG framework focuses on corporate governance, climate-friendly solutions, access to clean and renewable energy sources, elimination of child labor, recognition of the role of women, upholding of human rights as well as adoption of instruments that help quantify, manage and report on carbon footprints.

Guidote said investors are looking beyond philanthropy and want sustainable initiatives incorporated in the business. Among these include the use of solar panels and its impact in reducing carbon credits.