ENVIRONMENTAL, social and governance (ESG) criteria have continued to emerge in various markets as more investors consider the impact companies have on the world, and their role in the sustainable development of where they operate. While no major stock exchange in the region has mandated ESG disclosures, the Jamaica Observer’s Sunday Finance will be exploring the topic and how it has impacted various companies in their own pursuits.
According to Investopedia, ESG are a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments. Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change, for example. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights. A Bloomberg Intelligence report noted that global ESG assets may surpass US$41 trillion by 2022 and US$50 trillion by 2025.
On the Jamaica Stock Exchange (JSE), various companies detail some of these items in their annual report, including corporate social responsibility, corporate governance and environmental impact measures. Whereas disclosures such as executive compensation, shareholder rights and employee composition tend to be only mentioned in the audited financials from a broad view, companies on the New York Stock Exchange and Nasdaq are required to disclose these elements in a detailed manner either by the stock exchange, the securities regulator Securities and Exchange Commission (SEC), or the Securities Act of 1934.
“The [JSE] Group, however, lags in the implementation of the environmental aspect of ESG requirements and is taking the necessary steps to move with the direction of implementing guidance for itself and the companies that are listed on the JSE. Notwithstanding this, since 2020 the JSE has embraced many changes recommended to improve its own environmental efficiencies. We continue to be actively engaged with the government in developing a Green Bond Market for future listings of Green Bonds in Jamaica and the region. This we hope will attract sustainable investment flows to our region,” stated the managing director’s report in the JSE’s 2021 annual report. Marlene Street Forrest is the JSE’s managing director.
The same report mentioned how corporate governance is embedded in its rules for listing, its member dealers (otherwise called brokers), and at its annual Best Practices Awards. The JSE launched the Jamaica Social Stock Exchange in February 2019 as a way to assist social sector organisations in attracting long-term funding in order to make their projects sustainable. Nora Blake is the general manager.
The JSE launched a corporate governance index in association with the Inter-American Development Bank and Multilateral Investments Fund in April 2016. The standards and best practices were developed based on the Private Sector Organisation of Jamaica’s model code. When the first-published scoring details were released at the end of 2019 for the April 2018 to March 2019 period, 67 companies were reviewed with only 13 companies making their CGI score public. The average score was B, which meant that most companies performed at a fair level as outlined by the JSE’s corporate governance index manual.
Of the companies which published their scores, GraceKennedy Limited (GK) achieved the highest score of AA — with Carreras, Jamaica Producers, JMMB Group and Sagicor Group Jamaica achieving A scores. Lasco Manufacturing Limited achieved the best score by a Junior Market company which was BB, the third-best score in the 7-tier scoring system. The JSE received the same score in that year. Similar to how it is optional for supplementary information, including a management discussion and analysis, to be published by companies, most companies don’t publish their CGI score in their annual reports.
Despite this current drawback, some companies have embraced the publication of their CGI scores and their various levels of ESG impact. One such company is Barita Investments Limited whose CGI score moved from 59.40 in 2020 (CC) to 80.42 in 2021 (A). The company also outlined in its 2021 annual report various aspects of its social impact, but not much on the general environment. This comes after it was taken over by Cornerstone Financial Holdings in August 2018.
MPC Caribbean Clean Energy Limited is the only company on the JSE with a full ESG report annually, which is largely due to its German Fund Manager MPC Capital AG.
“ESG is becoming significant in terms of any corporate entity in the world. If we’re saying that GraceKennedy is an international company with its headquarters in Jamaica, we have to embrace ESG. I’ve been in meetings with investment bankers and they’re not even going to talk to you if you don’t have an ESG policy in place. GraceKennedy for the first time published our ESG policy and it is line with the United Nations sustainable development goals,” said GraceKennedy’s Chief Executive Officer (CEO) Donald Wehby at the company’s recent annual general meeting (AGM).
GraceKennedy used two pages in its annual report to highlight its ESG activities in 2021, which included $39 million invested in food banks and charities; $12 million in reducing, reusing and recycling waste; and more than 60 per cent of its senior management roles being held by women. GraceKennedy has six males and three females on its board. The company intends to list its financial group and food arms on major international stock exchanges by 2030.
“ESG is on the board’s agenda. We have had discussions about it but I will say at this time we have not formally adopted or implemented an ESG policy across the group. We have, however, incorporated ESG in elements of our strategy and policy framework in terms of how we operate, in terms of our governance, and so on. Just last year we had extensive training for directors and key members of management in ESG,” said NCB Financial Group (NCBFG) President and CEO Patrick Hylton at the company’s February AGM.
NCBFG received a CGI score of AA in 2021 and held a training session with senior McKinsey and Company partner Matt Rogers on ESG during COVID-19 and beyond. Rogers was recently appointed CEO of the Mission Possible Partnership, which is an alliance of climate leaders focused on supercharging efforts to decarbonise some of the world’s highest-emitting industries in the next 10 years. While it lacked a formal environmental point in its annual report, it mentioned,“continuously seeking environmental solutions with a minimal footprint, while putting processes in place to prevent, reduce and mitigate any negative impact on the environment”.
“We continue that work and it’s a journey which will take some time. I can’t say at this point in time that we will be formally reporting on ESG in the next year. It’s a path to which we’re committed and watch this space, as you’ll see more about it in the near future,” Hylton added.
International stockbroker Interactive Brokers Inc implemented the use of an impact score through Refinitiv for its clients in 2021 to give them the ability to align their goals with companies which implement such policies and to alert them to which companies to avoid that engage in negative practices. S&P Global and MSCI have built numerous indices, with the former having more than 1,500 indices built to date. Even the Nasdaq implemented a board matrix in September 2021 which will require companies to disclose the diversity of their board using categories such as what board memebers identify as and their demographic background.