Beverages in Asia

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Beverages in Asia ISSUES FOR RESPONSIBLE INVESTORS BEVERAGES IN ASIA JUNE 2010 Rebecca Lewis Author Rumi M. Morales Editor COMMISSIONED BY Responsible Research is an independent provider of sectoral and thematic Asian environment, Responsible Research is the exclusive partner in Asia for RepRisk, a web-based tool which provides social and governance (ESG) research, targeted at global institutional investors. Many of these fund insights on environmental and social issues that present financial and reputational risks to companies managers and asset owners now find that traditional investment banking reports, financial models and and investment portfolios. The tool enables commercial and investment bankers, asset managers, public information sources can no longer be relied on to cover all risks to earnings and deliver superior and supply chain managers to manage the corresponding risks and to implement effective screening returns. 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RepRisk’s comprehensive and relevant database enables Responsible Research was founded in 2008 by our Board who have been instrumental in promoting you to meet the risk management and compliance chal- Corporate Social Responsibility (CSR) and SRI practices in Asia for over 10 years and have significant lenges in an increasingly complex world. On a daily basis, experience in the regions emerging investment markets. This team of five works in collaboration with RepRisk tracks a company’s or project’s environmental our full time Asian-based responsible investment analysts and the Responsible Research Alliance, and social risk exposure by monitoring independent third- a group of consultants with subject matter expertise. Together they provide a valuable balance of party sources such as all major print media, over 700 market and ESG knowledge, academic rigour, process management, data management, customer NGOs, newsletters, news sites, governmental agencies relationship management and senior level contacts. and blogs. Controversial issues covered include environ- mental footprint and climate change, human rights and Many of our clients are signatories to the UN backed Principles of Responsible Investment (PRI), an community relations, labour conditions and employee re- investor initiative. As signatories they commit to incorporate ESG issues into their investment analysis lations as well as corruption and money-laundering. In and to support the development of ESG tools, metrics and methodologies. As a signatory to the PRI particular, all principles of the UN Global Compact are we voluntarily contribute time and resources to the Emerging Markets Disclosure Project and other addressed. RepRisk covers all major business languages collaborative initiatives. Responsible Research is also a strong supporter of independence in research, (Chinese, English, French, German, Japanese, Korean, without which conflict and bias can deliver investment risk. The company is one of the founding Portuguese, Russian, and Spanish) and its database cur- members of the Asian Association of Independent Research Providers and also of the Asian Water rently includes over 13,800 companies and 2,900 proj- Project. ects, and is updated and growing daily. Please contact [email protected] for more information. For more information, please contact Responsible Research: Email: [email protected] Tel: +65 9386 6664 www.responsibleresearch.com © Responsible Research 2010 | Green Building: Issues for Responsible Investors | 2 EXECUTIVE SUMMARY This report provides an overview of environmental, social and governance (ESG) For soft drink makers, stakeholder engagement will become an important issues in the beverage sector in Asia. The issues that we highlight are those we focus as health issues mount relating to sugar intake and the use of artificial view as the most material to companies and which pose the biggest threats to ingredients become increasingly common. Health and safety issues along the their operations, brands, reputation and profitability. supply chain remain an important issue for all beverage products, particularly those with a focus on wellbeing. Responsible brewers, bottlers and alcoholic and non-alcoholic beverage makers should monitor, measure and report on the impacts and risks that these issues Labour issues will continue to be an issue for large multinational pose to their business models and investors. companies (MNCs) operating in emerging Asia, as these expanding companies are trying to maintain an ever-increasing temporary workforce. The potential Astute long-term investors appreciate that they require a full understanding of for reputational risk to large companies due to labour issues cannot be taken these risks to make fully informed investment decisions, and understand that lightly. company disclosure on ESG issues is a leading indicator of how businesses are strategically managing their sustainability risks. Governance Strong governance is clearly vital for companies to ensure the integrity of their ‘Sustainability is good business because it protects the firm and its cash flow and organizations, relationships with consumers and government authorities to avoid ultimately as a commercial enterprise that’s what it’s about for the long haul.’ corrupt business practices. More specifically acquisitions and JVs will become a - Paul S Walsh, Diageo Chief Executive, May 2008 common feature of the Asian beverages marketplace and these may go sour as companies in Asia find it difficult to keep within the boundaries of contractual The report begins with an industry overview followed by three main sections agreements. Government sign off may also be required for some transactions focusing on ESG issues. Shortcomings in any of these areas present businesses and may be easier to obtain for well governed, transparent, socially aware with risks. companies. Maintaining a high level of transparency is also important for alcohol companies that provide financial support for industry groups that in turn lobby Environment national governments for changes in alcohol policies. Companies require reliable supplies of ingredients and other materials used in production. The key environmental factor impacting the beverage industry Conclusion is access to fresh water. In this report we review the physical, business, Across the three sections we find a range of important issues that beverage reputational, regulatory and litigation risks that beverage companies must companies need to address in order to earn a license to operate in Asia. consider regarding this all-important resource. Responsible Research believes that the top three sustainability issues facing alcoholic beverage companies differ from those facing non-alcoholic beverage Our benchmarking research shows that most companies in Asia are not companies (Figure 1). yet strategically managing water resources and have only undertaken ad hoc initiatives related to water use with apparently limited understanding of Our report culminates with a scoring Figure 1: Top three sustainability issues to water’s materiality to business models. However, leading global players are analysis where we benchmark 30 of be address by alcoholic and non-alcoholic undertaking initiatives to improve the efficiency of their beverage production. the largest listed beverage makers beverage makers This includes Diageo, who lead our benchmarking of global beverage companies, in Asia across ten countries from the and notable Asian listed MNC subsidiaries, Nestlé Malaysia, Guinness Anchor MSCI AC (All Country) Asia Ex Japan Berhad and Carlsberg. index. Each company is ranked against key indicators of performance Corporate reporting and community engagement on water issues are both in the following categories: expected to increase and improve. Despite this, water stress will remain a Reporting, Environment, Workplace growing concern across
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