ESG trends in Taiwan will reach another climax in 2022. With the overwhelming presence of advertisements emphasizing corporate ESG, attention to ESG is not only paid internationally and by the requirements of competent authorities, but it even affects consumers’ preference for the enterprise. In the financial industry, in addition to the internal requirements by the company’s management, ESG is also applied externally, including credit rating, investment decisions, and partnership decisions, all of which will be evaluated. The implementation and development of the evaluated enterprise in ESG will affect how financial institutions determine the potential of the cooperation between the two parties and the improvement direction of the evaluated enterprise.
TEJ has been studying ESG-related issues for many years, and to date, it has accumulated a rich amount of data in this area. For analyzing whether a company is fulfilling its corporate social responsibility (CSR), we provide a variety of information so that users can understand the degree of ESG implementation of the subject company. For ESG information under CSR, we refer to the ISO 26000 social responsibility framework proposed by the International Organization for Standardization (ISO), and we further organize them as follows:
The core subjects of ISO 26000 are described below:
Organizational governance includes TWSE Evaluation System and CSR report disclosure and audit status. The TWSE System is the corporate governance evaluation of Taiwan-listed companies conducted by the Taiwan Stock Exchange since 2014. It facilitates the public understanding of a company’s performance in corporate governance and guides healthy competition among enterprises. For the evaluation system, please refer to the website of the Corporate Governance Center of the Taiwan Stock Exchange.
For CSR report disclosure and audit status, it covers the situation in which listed companies disclose CSR reports. According to “Taiwan Stock Exchange Corporation Rules Governing the Preparation and Filing of Sustainability Reports by TWSE Listed Companies,” the legislation has been expanding the scope of companies that are required to disclose in the CSR report. And if there is a non-compulsory disclosure but the company voluntarily discloses, or if the company obtains certification from an external organization, it will all add value to the implementation of CSR.
Human rights issues include information on the insufficient number of persons with disabilities employed by enterprises and a list of conflict-free minerals. The aforementioned database, according to the People with Disabilities Rights Protection Act, collects the insufficient number of persons with disabilities employed by companies—an important variable in human rights to analyze.
If the source of manufacturing and raw materials is conflict-free minerals, it is a positive sign of fulfilling CSR in response to a green supply chain and responsible manufacturing.
Employees are the most important intangible assets of an enterprise. Among the various stakeholders of an enterprise, employees are the group with the longest relationship with the company. Therefore, paying attention to issues regarding employee equality is an indispensable part of CSR. Employee issues are related to employee turnover, education, salary, gender, occupational injury, and parental leave, to name but a few, and the information sources include CSR reports, annual reports, the Ministry of Labor, etc. Some key points include:
TEJ calculates the employee turnover rate in a unified way (refer to the article) and compares employee and executive compensation, which can become an important reference for observing the happiness of employees of a company. Since there is no specific format for the employee-related information disclosed in the CSR report, it is difficult to compare across companies. In addition, not all companies have issued the report, which makes the comparison even more difficult.
(2) Negative Information
There are no standard metrics to the above-mentioned employee turnover rate and salary, but the violation of the Labor Standards Act can be regarded as a negative indicator of employee equality. Negative information includes violations of the Labor Standards Act, Act of Gender Equality in Employment, Labor Pension Act, etc.
(3) Gender Equality
Under gender equality, the gender composition of employees of an enterprise should not be unbalanced unless it is related to the characteristics of the industry or special conditions, and the law protects employees’ right to apply for parental leave. Collecting this information can also be used to observe whether the enterprise has any misconduct related to gender equality.
Environmental issues mainly discuss carbon emissions and water consumption. And the ways carbon emission and water consumption data disclosed in the CSR report differ between companies. Therefore, TEJ adjusts the measurement basis of different companies. In addition, TEJ also pays attention to whether the water consumption includes recycling water volume to avoid inconsistencies.
According to Task Force on Climate-Related Financial Disclosures (TCFD), the purpose of TCFD is to provide clear, comparable, and consistent information about the risk and opportunities of climate change. And when including relevant financial disclosures and the cost of carbon emission, it is necessary to refer to the carbon price. TEJ collects the price information of the European Energy Exchange (EEX) and China carbon trading, and with the company’s carbon emissions, it can calculate the external costs of a company and further evaluate the future operational risk.
Fair Operating Practices
TEJ collects illegal operations and negative social responsibility news of companies. Through the daily TEJ newsletters, users can keep track of the occurrence and impact of corporate negative events. Social responsibility news is further classified into 12 subcategories according to the ESG framework:
Consumer Issues, Community Involvement and Development, and Diversity
If a company obtains various product certifications, it can be shown as a positive sign for fulfilling CSR in production. TEJ includes the MIT, environmental protection, and ISO certification labels obtained by various companies, which can be positive indicators of all aspects of ESG. In addition, public donations announced in Market Observation Post System (MOPS) by the company are also used as a positive indicator for evaluating the company’s implementation in the S dimension. Finally, for diversity, TEJ includes the gender of directors, the number of seats female directors occupy on the board of directors, and the degree to which they can influence decision-making in the workplace. This can clarify whether the gender ratio of directors in local companies is balanced.
After studying CSR reports and company disclosure, as well as studying the ESG indicators of large international institutions, it is not hard to find that the ESG ratings on the market cover only a limited range and do not apply to all listed companies. Furthermore, the incomplete disclosure of ESG information of Taiwanese companies, with the huge difference between companies due to industry characteristics (especially the E dimension), are all problems in developing ESG ratings for Taiwanese companies. However, through the accumulation of ESG information on Taiwanese companies, together with quantitative analysis technology, ESG ratings for Taiwanese companies developed by TEJ will soon be launched!