From the Commons

Emerging Markets Engagement in Action: India

Successful ESG investing and “active ownership” in Emerging Markets requires local partnerships (with research providers, investors, stakeholders, and regulators) as well as in-person research trips to enhance our understanding of cultural context. We have built our own networks of contacts and reliable information sources to corroborate vendor data. This quarter, our Director of Shareowner Engagement, Lauren Compere, returned to India after a three-year hiatus, to gauge progress on: companies embedding ESG into their practices, and regulators and stock exchanges adopting higher ESG standards. She also participated in the Asian Corporate Governance Association (ACGA)’s annual conference held in Mumbai.

In a number of meetings with the Securities and Exchange Board (SEBI), the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) we discussed progress towards higher corporate governance standards and the promotion of voluntary ESG best practices and disclosure. India has seen rapid adoption of corporate governance standards, and there is a growing proxy agent market, in which there are now 3 domestic players.  As of 2016, pension fund regulators require mutual funds to publish their voting policies and rationales. In 2017, India released a draft Stewardship Code joining Asian countries, such as China and South Korea, to promote more active stewardship and engagement by domestic institutional investors.

The Kotak Corporate Governance Committee released recommendations to provide increased protection to minority shareholders. Current corporate governance regulations for issuers include: one woman on the board; mandatory auditor and independent director rotation after 10 years; required approval by a majority of minority shareholders for related party transactions; and mandatory dividend distribution policy. 

SEBI now requires that the top 500 listed companies India produce a Business Responsibility Report (BRR) and 2% of three-year average profits must be spent on Corporate Social Responsibility (CSR). Locally, there is some concern that while a laudable effort, the “CSR tax” has not fulfilled its intended mission to divert investment into addressing critical societal needs, such as clean water, nutrition, children and women’s rights, and climate change.

We focused our discussion with SEBI and NSE on voluntary guidance on ESG best practices for companies. We suggested that they review guidance such as that provided by the Task Force on Climate-related Financial Disclosures (TCFD). The NSE and BSE both currently produce guidance for their listed companies on global ESG best practices with the intent of creating a “premium segment” brand for NSE listed companies. The BSE is releasing a best practice guide on ESG disclosure for its listed companies. We provided specific feedback and suggested including a reference to human rights disclosure, as detailed in the UN Guiding Principles (UNGP) Reporting Framework. The BSE has mapped the BRR report requirements to the Global Reporting Initiative (GRI) and is considering additional frameworks, such as the TCFD and Integrated Reporting for their 5,500 issuers.

In our discussions with the head of CDP-India, we learned that Carbon and Water survey responses have become quite robust even though participation rates have not grown; two-thirds of the current CDP Carbon survey is aligned with TCFD on climate risk. One key driver for responding to CDP in India is whether a company is a supplier or vendor to multinational companies. Some of our portfolio holdings, such as Unilever and Dr. Reddy’s, did well in responding to CDP last year. HDFC Bank chose not to respond in 2017.

Global standards, Local context

As part of an investor delegation, Boston Common co-convened an investor-roundtable for the Access to Nutrition Index (ATNI) to discuss the 2016 ATNI India Spotlight Index results, and to get feedback on ATNI’s approach for the 2018 Index. More than 97 million children in India are underweight. 39% have stunted growth while 70% are iron deficient. At the same time, India is the second-most obese country in the world, behind China. 70 million people are diabetic, which is expected to increase to 120 million in 20 years.

The food and nutrition science teams of Pepsi India and Unilever HUL shared how they are addressing the double burden of nutrient deficiencies and growing obesity. With growing consumption of packaged foods in India, there is a role for the food and beverage sector to promote better nutritional practices, including appropriate food fortification (fruit juices, bread, and cereals) to address current nutrient deficiencies.

The 2016 ATNI India Spotlight Index assessed the largest 10 food and beverage manufacturers in India on their corporate profiles, product profiles and marketing approaches to breast milk substitutes. Nestle IndiaUnilever HUL and PepsiCo India ranked in the top three for the overall 2016 ranking.  Local companies, including Mother Dairy and Amul, generally performed better in the Product Profile ranking over global brands. The Product Profile analysis found that only 12% of beverages and 16% of foods sold by Index companies were of high nutritional quality. Boston Common engaged MondelēzPepsiCo and Unilever on the 2016 India Spotlight findings in its 2017 dialogues. We are already seeing an impact; companies are reviewing their nutrition profiling systems, and the Indian government is increasing commitment to labeling regulation and fortification standards to combat micronutrient deficiencies. This Product Profile exercise in India will inform ATNI’s approach for the 2018 Global and US Indices.

Boston Common met with PepsiCo India and Unilever HUL on the local implementation of each company’s global standards, including a focus on climate change, human rights, responsible sourcing, and water stewardship.  Unilever HUL shared the local implementation of its Sustainable Living Plan, focused on how its products are addressing fundamental health issues in India. Pureit has purified 74 billion liters of safe drinking water.  The company also shared its approaches to Responsible Sourcing and to Eco-Efficiency (energy, water, and waste management). It has achieved 49% reduction in CO2, 53% in water and 45% in total waste. The company sources 100% of tomatoes and close to 50% of tea in India from sustainable sources.

PepsiCo India’s local implementation of its Agenda 2025 focuses on nutrition and product reformulation. Under its Quaker and Tata brands, the company has addressed micronutrient deficiencies. It has launched a Quaker Nutri Dosa, which is a source of protein and fiber, and Tata Water Plus, which addresses copper and Zinc needs at affordable prices.

PRI Labor Standards in the Supply Chain

Boston Common led calls with Mondelez and PepsiCo in December on their approach to human rights and responsible sourcing, through the PRI Labor Standards in the Agricultural Supply Chain engagement. In 2017, PepsiCo used the UNGP Reporting Framework to guide its salience assessment of human rights exposure across its value chain. PepsiCo identified six priority areas including working hours/wages, land rights, freedom of association, workers (age/gender/trafficking issues), and the human right to water.  PepsiCo has prioritized human rights in its new strategy in four key commodities: palm oil, sugar, potatoes, and citrus. Its leverage and approach depends on whether the company has a direct contract, such as with potato farmers in India or with the mills for its sourcing of palm oil and sugar. In 2016, Mondelēz mapped out key agricultural commodities, including cocoa and palm oil, which have the most potential leverage to impact change. Mondelēz has committed to invest $400 million by 2022 to empower cocoa small farmer holders in its supply chain. Under its 2020 goals, it has committed to having 100% of its cocoa (compared to 21% as of 2016) and its palm oil sustainably sourced and third party certified, with 96% traceability to the mills and 99% Roundtable on Sustainable Palm Oil (RSPO) certified suppliers. Mondelēz also committed to 100% of its eggs being cage-free in the US and Canada by 2020 and in the EU by 2025.

Collaboration through groups such as the RSPO and the Consumer Goods Forum (CGF) is critical for addressing systemic risk issues in agricultural supply chains. Boston Common emphasized in both dialogues the need to focus on critical leverage points in the supply chain to “know and show” how they are respecting human rights under the UNGPs.

Mondelēz is the co-chair of the CGF Palm Oil Working Group and works to leverage industry action on issues such as ethical recruitment.  While both companies have advanced governance of human rights and robust due diligence, both received a 0 score on Ethical Recruitment in the Know the Chain’s 2017 report.  We have asked both companies to adopt specific language in their policies on ethical recruitment and to provide more robust disclosure on how they are addressing this issue.


The information in this document should not be considered a recommendation to buy or sell any security.

Published On: December 15, 2017Categories: From the Commons
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