ESG Culture Clash
JNBY is the second largest position in our Asian portfolios. Listed in 2016 and owned by us continuously since 4Q2017. The company has smashed it. A total return of 314% for shareholders who purchased at the IPO since listing compares to an 7% loss in the Hang Seng Index over the same period. The company describes itself as “an influential designer brand fashion house based in China.” We would argue that they are the leading fashion house designer and also a leader in modern day Governance issues.
Note JNBY’s Board composition. Three executive directors (one male and two females), one male non-executive director and three independent directors (two male, one female). Females account for 43% of the board. If this is not unique, it is highly unusual. The average Hong Kong board is 20% female, 80% male. To be fair Boardroom diversity in Hong Kong has improved somewhat in recent years, currently only 20% of Hong Kong listed companies have all-male boards down from over 30% in 2020.
The Hong Kong Stock Exchange has given listed companies until the end of this year to ensure that each board includes at least one woman and, while the majority of firms have complied, nearly 500 are still overseen by all-male cohorts. The penalty for failure to follow this guidance? Delisting.
Among the 500 yet to fall into line are China Merchants Bank (mkt cap USD 107bn) and Bank of China (mkt cap USD 162bn). Indeed, of the ten biggest firms governed by all-male boards nine are Chinese state-owned enterprises or their affiliated firms where directors are typically appointed by the State-Owned Assets Supervision and Administration Commission (or another SOE parent company).
The 2020 CWDI Report by Corporate Women Directors International states that women hold just 14.8% of board seats in the top companies across 20 Asia-Pacific economies. Northern Europe (37.6%), Western Europe (28.6%) and North America (26.5%) rank as the top three, while Latin America (8.3%) and the Middle East (3.7%) fall to the bottom.
ESG question. In the MSCI ESG methodology, board diversity is a measure that impacts a company’s rating. Are western values being thrust upon Asia, the Middle East and Latin America? Yes. Is this fair? Well, frankly that is above our paygrade. Our Asian portfolio has a Sustainalytics rating of 17.87 (weighted average) which is low risk. By industry rank 40% of the portfolio is rated top quartile, 16% fourth quartile. By global rank 48% of the portfolio is rated top quartile, just 8% are fourth quartile. Food for thought.
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