High hopes

Brighter prospects for sectors across Asia

Our latest CG Watch report comes hot on the heels of a year that shook much of the corporate world. More than ever, the need for original, actionable insights into how Asia is responding to demands for better governance, has made itself felt.

The report gives us hope: Asian companies are rising to the challenge, beginning a genuine process of looking inside to build sustainable growth.

Two unique perspectives

This year continues our collaboration with the Asian Corporate Governance Association (ACGA), but for the first time we have split our focus: While the ACGA continue to analyse scores at the market level, we have taken them by sector. We believe this alternative approach will provide two unique perspectives on governance issues and progress in Asia, as well as the increasingly relevant environmental and social pillars of ESG.

The sectoral view
CG Watch rankings by sector

Materials and capital goods tops the chart, with conglomerates, power and utilites struggling to get off the bottom.

Source: CLSA
Rank 2020 2018
Materials and Capital Goods 1 1
Technology 2 4
Healthcare and Pharma 3 2
Financial Services and Insurance 4 10
Auto 5 8
Consumer 6 7
Transport and Infrastructure 7 3
Energy 8 6
Property 9 5
Internet, Media and Telecoms 10 11
Hotels & Leisure 11 9
Power and Utilities 12 13
Conglomerates 13 12
The market view
CG Watch rankings by market

Small differences in overall scores are hiding big variations in performance across categories. Australia tops the charts, while the Philippines and Indonesia still struggle with governance reforms.

Source: ACGA
Market Total (%) Macro market highlights
1. Australia 74.7 Banking commission spurs enforcement, still no federal ICAC
=2. Hong Kong 63.5 New audit regulator, enforcement remains strong, ICAC disappoints
=2. Singapore 63.2 Enforcement firming, rules improve, company disclosure disappoints
4. Taiwan 62.2 Big CG reform push on multiple fronts, rules still complicated
=5. Malaysia 59.5 Political turmoil erodes government scores, other areas hold steady
=5. Japan 59.3 Ahead on climate change reporting, behind on company CG disclosure
7. India 58.2 New audit regulator, civil society surges, public governance disappoints
8. Thailand 56.6 Political turmoil erodes government scores, rules strong, investors improve
9. Korea 52.9 Public governance strengthens, CG disclosure improves, regulatory opacity
10. China 43.0 Forging its own governance path, still waiting for ESG reporting guidelines
11. Philippines 39.0 Stronger regulatory focus on CG, investors and civil society disappoint
12. Indonesia 33.0 CG reform continues to struggle, some stronger rules, new e-voting system

Governance matters

Our governance scores for sectors have improved across all criteria, a clear sign that Asian corporates are heading in the right direction.

We also continue to see a positive correlation between stock returns and governance scores, with companies in the top quintile of ESG scores outperforming those in the bottom by 7.5% over the past five years. Among the ESG pillars, governance has the highest positive correlation to returns, providing strong evidence that it remains the most important area for investors to focus.