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Business trends

Southeast Asian companies jump on impact investment bandwagon

Businesses grow conscious of own environment and human rights records

An Olam pepper farm in Vietnam: The Singaporean commodities trader plans to sell off business units that are unpopular with international investors concerned with sustainability.

BANGKOK -- Businesses in Southeast Asia are taking action to improve their track records on environmental and labor practices as socially responsible investment takes hold in global financial markets.

Global investment focusing on environmental, social and governance issues topped $30 trillion in 2018, and Asian companies are eager to claim their share. Asian stock exchanges have also taken note, with 10 exchanges in eight countries requiring listed companies to report on ESG investments. That is more exchanges than in Europe, where sustainability-linked lending is more common.

"Between 2016 and 2019, almost $13.7 billion was raised in 'impact' and ESG investing across 51 funds or so," said Thomas Lanyi, chairman of the Singapore Venture Capital & Private Equity Association. "Asia-focused funds represented half of the amount raised."

Singaporean commodities trader Olam International is one of the companies joining the ESG wave. In March, it secured a three-year, $500 million, sustainability-linked revolving credit facility. Under its terms, Olam is committed to meeting targets for a range of ESG metrics, including environmental protection and labor conditions.

At the beginning of 2019, Olam announced that within five years it will sell off units operating in sugar, rubber, wood products and fertilizer -- businesses that it said no longer fit its strategic priorities.

The company plans to allocate the $1.6 billion it expects to garner from the sale of the four businesses to greener and more profitable areas, including edible nuts and coffee.

"Asia is now catching up with Europe as far as ESG and sustainability are concerned," said Olam CEO Sunny Verghese.

Thai Union Group, the world's leading canned tuna exporter, is another company trying to incorporate these principles. In 2015, an Associated Press investigation documented slave labor at some of the company's suppliers, and human rights groups blasted the Thai fishing industry for "slavery at sea."

The company put changes in place, including a new system to monitor acts of violence on deep-sea fishing ships.

In early July, the Institute for Human Rights and Business, a British think tank, held an event in Bangkok called the Global Forum for Responsible Recruitment. Darian McBain, Thai Union's global director for corporate affairs and sustainability, spoke at the event and drew applause as she described how the company is dealing with the issue of modern slavery.

"We have worked hard to combat modern slavery, and to promote safe and legal labor throughout our supply chains, as well as to position ourselves as leaders of positive change in the private sector," McBain said.

An additional challenge Southeast Asian companies face in attracting ESG investment is overcoming investors' preconceptions about the region.

Malaysia's Sime Darby, the world's largest plantation operator and palm oil producer, for example, is frequently criticized by ESG investors and environmental nongovernmental organizations. However, the company sometimes comes under attack for practices at plantations it does not own.

Some foreign investors automatically assume that Malaysian companies are linked to plantations, said Mohamad Nasir Ab Latif, chairman of the Institutional Investors Council Malaysia. European and U.S. investors may sell off stocks in Malaysian companies that are unrelated to the environment, he said.

The council, a government-affiliated organization established as part of Malaysia's corporate governance reforms, typically urges companies to make governance improvements. But it also tries to clear up misunderstandings on the part of Western investors, underscoring the pressure that financiers can bring to bear.

A Malaysian government official said that attracting ESG investment is important to Asia's growth and making its companies competitive.

Southeast Asian investors are also embracing ESG principles. Singapore's state-backed investment fund Temasek Holdings, which has more than 300 billion Singapore dollars ($220.4 billion) in assets under management, invests about 70% of its capital in Singaporean, Chinese and Southeast Asian companies.

In recent years, Temasek has promoted sustainable investment. The sovereign wealth fund set up a specialized team three years ago to ensure that sustainability is taken into consideration in the fund's investment decisions.

"We also have to account for the sustainability impact of those issues, that is, ESG," said Temasek Chairman Lim Boon Heng in a presentation in October. "So we should hold ourselves accountable."

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