Each week Emerging Markets ESG publishes an interview entitled, “Five Questions about SRI.” The interview features a practitioner’s insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are fourfold:
- To reflect on what SRI in emerging markets means to practitioners;
- To collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Hans B. Sicat, President and CEO, The Philippine Stock Exchange, Makati City, Philippines.
The Philippine Stock Exchange is a premier exchange with world-class standards for trading securities and raising capital that serves as a strong engine for a robust economy. Its mission is to: offer products and services responsive to the needs of investors and other stakeholders; provide a facility for fair, accurate, complete and timely information about listed companies, while extending market education and awareness programs to investors; be a preferred venue for raising capital; practice and promote good governance within the Exchange and among listed companies and trading participants; operate efficiently to optimize shareholder value; adopt world-class systems and global best practices for an efficient, fair and orderly market; and develop a highly motivated and professional workforce, committed to serve and excel. The history of the exchange dates to 1927.
Hans B. Sicat was named President and CEO of The Philippine Stock Exchange (PSE) in January 2011. He also served as Chairman and Independent Director of the PSE from May 2009 to January 2011. He is concurrent President and CEO of the Securities Clearing Corporation of the Philippines (SCCP). Currently, he is non-executive Vice Chairman and Director of LegisPro Corporation. Mr. Sicat also holds positions in various business entities such as Independent Director of Serica Balanced Fund and Master Fund, Independent Director of the Philippine Dealing System Holdings Corporation, and Board of Trustee of Securities Investors Protection Fund, among others. Mr. Sicat has more than two decades of experience as investment banker. He was Chief Representative of Citigroup Global Markets Asia Pacific Limited in the Philippines from July 2000 to September 2008; Director and Head for Philippine Investment Banking at Salomon Smith Barney Asia Pacific Limited from April 1996 to June 2000; and Managing Director for Asian Fixed Income (Emerging Markets) at Citicorp International from December 1993 to March 1996. He was also Vice President and Capital Markets Asia Head of Citicorp Securities, Inc. in New York City. Mr. Sicat finished his coursework for Ph.D. Economics Program at the University of Pennsylvania, Philadelphia, USA and earned his Master of Arts in Economics and Bachelor of Science in Mathematics at the University of the Philippines.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Hans B. Sicat: Mainstream investment has financial returns as its primary objective and looks at mainly objective and quantitative factors. SRI considers not just financial returns but non-financial or extra-financial returns which could enhance the company’s standing as a good corporate citizen. For socially responsible investors, the investment’s environmental and social footprint, as well as its compliance to governance best practices comes into play.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in the Philippines to manage?
Hans B. Sicat: The large-cap and blue chip companies are generally strong in corporate governance as well as their commitment to environmental and social issues.
Smaller companies may not be as strongly engaged in these areas because their focus would be directed more towards maintaining profitability, improving operations, etc. For this reason, one will find that the pool of active and visible ESG advocates and practitioners is composed more of the larger-cap companies in the Philippines.
But there are also smaller-cap companies, which are not necessarily listed, that are involved in SRI or have business models of a social enterprise. We see more and more of them in the Philippines, organized as either a company or a non-governmental organization (NGO).
As the relevance of ESG grows, however, more and more companies will realize that being good corporate citizens and addressing these extra-financial themes can be competitive advantages in the market.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in Philippine companies to analyze?
Hans B. Sicat: There are a number of corporate governance reports and scorecards by which investors can evaluate Philippine listed companies. These include the PSE’s Corporate Governance Guidelines for Listed Companies, issued in 2010, which is also a basis for the PSE Bell Awards for listed companies. Another is the new Annual Corporate Governance Report implemented by the Philippine Securities Exchange Commission in 2013 which details companies’ governance policies and practices. Lastly, the ASEAN Capital Markets Forum has come up with an ASEAN Corporate Governance Scorecard, based on the OECD Principles of Corporate Governance, which is intended to assess and compare listed companies across the ASEAN in terms of corporate governance standards.
These reports and scorecards, while focusing on recognizing and upholding shareholder rights, also help investors evaluate companies, in varying degrees, on their responsibilities to their other stakeholders, including the community and the environment.
Unlike the social and governance themes, which have strong advocacies in the market, it is the environmental theme that probably gets less focus and commitment from most companies and therefore is the most challenging for investors to analyze. Apart from the large-cap and blue chip companies, those that are usually involved in environment and related advocacies are companies whose businesses have a direct impact on the environment, such as mining firms. In order to strengthen the campaign for environmental initiatives, encouragement, cooperation and incentives from the local government must also be present such that private companies are motivated to address ESG issues.
I also think that the CSR impact of many companies going about their normal course of business tend to be ignored, even when their activities contribute to a sense of community, or even more basic, important in the existence of a normal functioning community. So there is an under-appreciation, for example, of food processing companies, beverage companies, or even utility corporations. Does it mean that if they do not have a formal CSR program, they are not SRI-compliant? The same may be said of mining companies, whose products – precious metals – find their way into smart phones, computers, etc. and without whose activities, the Information Age which we are in now may slow down.
I believe there is a wide discussion which needs to happen, and engagement into the philosophy and appreciation of SRI must be more far reaching than the current perception.
Emerging Markets ESG: Which opportunities exist at present for SRI in the Philippines? Are particular sectors of interest?
Hans B. Sicat: Given the level of economic and social development in the Philippines, there are many opportunities for corporate SRI. These include poverty alleviation, education, environmental protection and conservation, alternative energy, countryside and community development, and disaster relief, rehabilitation and reconstruction (especially in the aftermath of Typhoon Haiyan). However, companies need to work closely with government and civil society to achieve optimum impact in these sectors. Furthermore, companies need to constantly remember the greater profit and advantage in maintaining the long-term sustainability of the company and the social and natural environment where it operates, which is probably the key objective of SRI.