The biennial survey of Asian markets was carried out by brokerage and investment group CLSA in collaboration with the the Asian Corporate Governance Association (ACGA ) and while Australia was included in the research it was excluded in the market rankings so as not to skew past results as its CG score was significantly higher than top- ranked Singapore. ACGA assesses markets based on a country’s cumulative score across five categories; CG rules and practices, enforcement, political and regulatory environment, accounting and auditing and CG culture.
CLSA and the ACGA said the inclusion this year of Australia, the most robust governance ecosystem in Asia, provides a benchmark of the deficiencies in the region’s governance. Jamie Allen Secretary General of the ACGA said, “In contrast to Australia, the controlled and hierarchical management-shareholder communication system in Asia may become, if it does not evolve, a significant impediment to corporate governance and capital market development in Asia.”
The survey of 1,047 companies, carried out by CLSA, shows that reliable correlation between corporate governance and share price remained elusive it believes. CLSA Global Head of Thematic Research, Shaun Cochran said, “Share price performance is a function of an extraordinarily wide range of factors, most of which are outside governance’s direct sphere of influence. However, fundamentals and balance sheet are under management’s direct control and our analysis shows that better governance is associated with better fundamentals.”
CG Watch 2016 highlighted that Environmental, Social and Governance (ESG) factors are becoming integral to investment strategies worldwide. Charles Yonts, CLSA’s Head of Sustainable Research publishes a complementary report to CG Watch which assesses companies on issues material to their sector in order to provide a CLSA Environmental / Social score.
Yonts says: “CLSA analysis shows that companies which achieve higher ESG scores perform better on earnings revision and payout while exhibiting better free cash flow quality and lower balance sheet risk. One could conclude that over time, these companies would perform better.”