On May 20, Caixin held a live video conference on: “Non-financial Indicators and Sustainable Development of Enterprises”, in which the invited guests debated on the relationship between non-financial indicators and enterprise development.
Dr. Dequan Wang of Governance Solutions Group (GSG) presented on the panel hosted by UN PRI’s China head, Ms. LUO Nan. Other speakers included Zhang Chenghui of the Financial Research Institute of the Development Research Center of the State Council (DRC), Zhang Jiayu of Noah Fund, and Yang Yuebin of AXA SPDB Investment Managers.
These professionals addressed the issues surrounding ESG disclosure of listed companies, the role of corporate governance in promoting the development of ESG, the relationship between corporate ESG performance and investment return, and how investors can protect themselves from corporate governance scandals.
As an expert in corporate governance, Dr. Wang considered the recent Luckin Coffee scandal and introduced in detail how different participants in the market could prevent or completely avoid such unfortunate events.
He further explained that, “investors should practice active ownership and try to influence corporate actions by exercising their voting rights”. And, “investors should do better research on corporate governance in order to recognize leading indicators and detection methods which can help mitigate imminent risk”.
In this respect GSG has designed a rating system, called GSG IQTM, to assess corporate governance and sustainability performance of listed companies. The rating system provides graphical analytics and scoring on each issuer, derived from five governance pillars which detect and highlight governance and sustainability risk for investors.
Dr. Wang also introduced feasible methods to discover malfeasance in advance from the perspective of listed companies. The Luckin Coffee fiasco has caused an immense negative impact on China’s equity market. That said, a wide range of experts have advised that independent “whistleblower” systems have been effectively utilized to reduce such impact. For example, according to the Association of Certified Fraud Examiners (ACFE), “whistleblowing”, is the most effective way for enterprises to discover fraud or other illegal acts, which is consistently far more effective than only relying on internal controls and external audit.
A whistleblower system solves the problem of information asymmetry, helping the board uphold a culture of ethics and integrity as well as best practices in risk management, ensuring the earliest discovery of complexity. Implementing such a preventative mechanism allows the board to focus on strategy instead of dealing with public calamities.
Moreover, HKEx has recently revised its ESG Reporting Guidelines, introducing new KPIs requiring disclosure of anti-corruption training, in addition to requiring proof of each issuers anti-corruption measures as well as whistle-blowing procedures and how they are implemented and monitored.
In recognition of such merits, GSG provides anti-corruption training and a premium whistleblower service for clients in Hong Kong and foreign countries. When reporting utilizing internal company channels, whistleblowers usually worry about confidentiality, retaliation or even management apathy. By adopting third-party independent whistleblower service, not only is confidentiality assured but also robust measures on disclosure and whistleblower protection is formalized and published.
Lastly, a third-party independent whistleblower service strengthens investors’ confidence of listed companies’ governance integrity. Although it’s not yet mandatory, domestic listed companies may also want to consider such mechanisms to not only protect and improve their reputation but also their share-value.