How one Dutch pension gauges social impact of Asia investments
There is still a significant gap in information from investment managers and companies, related to the social impact of their work, according to the ESG head of a leading Dutch pension fund.
Daan Spaargaren, head of responsible investment at the €50bn Dutch pension fund PME told AsianInvestor that there is a need for more coherent social policies from investment managers and better data.
The fund, which invests €4 billion in Asia, scrutinises reporting on social issues closely when considering an investment, but often finds little information produced by companies themselves.
“Information about a company’s social contributions is sometimes a paragraph in annual report, next to information about lobbying. Companies should be at least more open and transparent on this,” he said.
PME
Investing in Asia also requires accommodating social or working practices that may differ from those in Europe.
“The typical working day in South Korea is longer than in the Netherlands, for example. These things need to be taken into consideration,” he said.
Spaaragaren said that an important source of social risk was the supply chain, where there the lack of information was problematic.
“It is very difficult for companies with complex supply chains, that are hard to trace. The problem is that [problems] only come to the surface as the result of a controversy,” he said.
He also pointed to other social elements prioritised by PME, such as the living wage and diversity practices.
In other cases, such as unionisation, which PME supports in general, application of the policy varies across regions.
“Countries like the Netherlands have a strong tradition of unionisation. For others, including many in Asia, the movement is younger. Here you may have to be more patient in driving change,” he says.
PROFIT SHIFTING
Spaargaren said that PME placed significant emphasis on where companies were based for tax purposes, to combat so-called base erosion and profit shifting (BEPS) – where multinationals "shift" profits from higher-tax to lower- or no-tax jurisdictions where they undertake little or none of their business.
“BEPS is a crime for social development. You are profiting from society: you are using well educated people and the infrastructure there [but not paying full taxes],” he said.
Adoption of recent anti-BEPS initiatives in Asia have been uneven.
In July, 135 countries signed the OECD/G20 Inclusive Framework on BEPS to move forward with major reform of the international tax system.
Asian signatories included Australia, India, Japan and Hong Kong, but excluded mainland China, Indonesia and South Korea.
GENDER
Spaargaren noted the importance of careful measurement when it came to the pay gap, including the gender pay-gap, in companies.
“Yes you should focus on gender, and on the difference between pay of the CEO and median [salary] at the company. But it’s important to ask specifically how this is defined,” he said, emphasising that the entire workforce, in all locations, needed to be included.
Asia has trailed many other continents when it comes to diversity and gender pay.
Research by the Asian Corporate Governance Association (ACGA) published in May found that, among China’s top 50 issuers by market capitalisation, the average number of women on boards at privately-owned enterprises was 18% and at one SOE or state-controlled board, it was 13%.
Asia’s progress towards the Gender Equality SDG has been poor: its 46/100 score in 2015 increased to 49/100 in 2021, according the data from UN’s Sustainable Development Report.
Progress on health and wellbeing has similarly been slow, rising from 63 in 2015 to 66 in 2021.
OECD data point to a drastic shortfall in the investment required to achieve progress towards achieving the UN’s Sustainable Development Goals (SDG) in Asia.
The current global funding gap -- the difference between the amount required to achieve the SDGs and the amount currently being invested -- has widened to $4.2 trillion per year.
MEASURMENT PROBLEMS
Spaargaren said that saw some examples of clearly executed social initiatives that could provide a measurable impact.
One example he provided was of a real estate manager -- in which the fund was invested -- attracting community services, including a dentist and a recruitment centre into a recent shopping mall development, to help turn it into a social hub.
But, in general, he said measuring social impact was complicated.
“The question ‘is this company part of their community’ is a very hard one to assess,” he said, drawing the comparison between a company that is contributing financially to the local soccer club with one that has a good record on employee welfare and a responsible approach to paying its taxes.
In April, Spaargaren told AsianInvestor that the investment industry needed to shift from traditional ESG measures to a more impact-based approach if it is to make investment sustainable for the long term, pointing to limits of using traditional ESG ratings.