TWSE urges investors to look beyond companies’ bottom lines

Taipei--The Taiwan Stock Exchange (TWSE) is encouraging investors to take into account companies' "environmental," "social" and "governance" (ESG) practices before deciding on their investment strategies in Taiwan's equity market.   The TWSE, which held an investment conference on assessing ESG factors last week, said investors usually focus on listed companies' bottom lines when making investment decisions but they should also pay attention to these non-financial factors.   The "environmental" factor refers to how a company's operations affects the environment; the "social" factor refers to how a company fulfills its social responsibility; and "governance" refers to a company's corporate governance practices.   According to the TWSE, which operates Taiwan's main stock market, many studies have found that investors who value these sustainability factors tend to earn higher returns than when making investments based only on profit numbers.   At the conference, National Chengchi University economist Wang Li-ling (???), who was deputy chief and then chief of the Financial Supervisory Commission from 2013 to mid-2016, said good ESG practices can help listed companies improve the quality of their operations.   KPMG President Huang Cheng-chung (???) cited an emissions scandal faced by German automaker Volkswagen in September 2015 as an example of what can happen when ESG factors are ignored.   Huang noted that even years before the scandal erupted, investors sensed how weak the company's corporate governance was when doing an in-depth analysis of its ESG practices.   Volkswagen was accused by the U.S. Environmental Protection Agency (EPA) of using a "defeat device," or software, in diesel engines that could detect when they were being tested and change the engines' performance accordingly to improve the test results.   After the scandal erupted, Volkswagen issued a massive worldwide recall of its vehicles and faced heavy fines.   Huang said ESG analysis can be conducted in many different ways under different circumstances, and investors have the flexibility to choose a model that suits their specific investment targets.   Tang Cheng-hui (???), an adviser to U.S.-based consulting firm Towers Watson & Co., also highlighted the importance of ESG criteria.   Citing Australia, Tang said the country has abundant forest and mining resources and investors needed to pay attention to the impact those industries could have on the environment if looking to invest in them.   Hermes Investment Management's Chou Shang-yi (???) said ESG analysis can help institutional investors improve their investment performance as long as they closely follow stewardship codes and thoroughly engage with the companies in which they have invested.   Stewardship responsibility requires that investors closely monitor the operations of those companies, such as voting at annual shareholder meetings.   Chou said engagement involves meaningful dialogue between investors and a listed company to check whether the company has achieved its goals and brought about real change in improving its practices.   Source: Focus Taiwan News Channel