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Jun 15

Emerging market companies improve governance to attract investment

Posted by dbedell in Sustainabilityemerging marketscorporate social responsibilitycorporate governancecomplianceCashCapitalBrazil


Brazilian companies are taking a page from their US counterparts when it comes to governance and corporate social responsibility. In a recent Latin American corporate governance survey by Latin Finance and consultancy Management & Excellence, Brazilian firms topped the rankings across different industries--not only aiming for compliance, but striving for excellence in corporate social responsibility, sustainability, board independence and other governance measures.

Companies throughout the region are showing increasing interest in building their good governance reputations in order to attract capital investment from Latin America, the US, and globally.

The leading Brazilian companies are giving even best-practice US firms a run for their money when it comes to good governance, including companies such as energy company CPFL Energia, mining company Vale and oil and gas firm Petrobras.

Good governance is important not just to bring in new investors, but also to attract capital from lenders and from NGOs—for example, the International Finance Corporation (IFC), requires that clients use sustainability and social responsibility measures to reduce reputational, legal, and credit risk. As a result, good governance is of increasing importance to companies in Latin America.

One thing that stands out about the leading firms in the survey is that they do not strive merely for compliance with corporate social responsibility, sustainability and other governance requirements, but rather they are working hard to surpass those requirements and provide more detailed information than would be required, say, under the Sarbanes-Oxley Act or listing requirements of the New York Stock Exchange or NASDAQ, or even for inclusion in the Dow Jones sustainability Index.

The leaders publish separate annual sustainability reports with figures on legal actions, environmental and social actions, emissions, and so on, according to the survey. Incidentally, Brazil has had a business sustainability index, the ISE, since 2005.

The top firms in the rankings are matching—if not surpassing--their US counterparts in terms of the detailed data they provide for sustainability reporting purposes, but that is hardly the norm with Latin American, or even Brazilian, companies. Once the top tier firms on the rankings are passed, scores appear to go down quite rapidly—perhaps delineating those companies that focus on global investors and those that do not.

Although clearly good governance is becoming of increasing importance to Latin American firms, as yet it is far from the trend that it is in North America.
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