Latin Finance - May/June 2011 - 36

corporate sustainability

responsibility. The risk metric measures the level of volatility in the performance category over the last three years. Together, the compliance, performance and risk measurements yield an overall sustainability score. The new method has meant that companies with poor performance and high risk scores such as Endesa and OGX, lost points this year. Cemig, the longeststanding Brazilian company in the Dow

deficiencies in transparency. LatAm companies’ compliance scores tend to be higher than their performance scores, Cox explains, a sign that implementation still trails planning. “Latin companies are hardly rated in sustainability, but investor interest will drive this trend,” Cox says. “Laggards may see the advantage of better voluntary transparency and attempt to improve.” Ex-Brazil LatAm companies tend to

Sustainability Ratings of Large LatAm Energy Corporations 2011
Brazil leads the pack CPFL Brazil Compliance Percentage Peformance Percentage Risk Score Percentage M&E Final Score & Rating Percentage
Source: Management & Excellence

Cemig Brazil 80.00% 75.00% 18.80% 82.50%

Endesa Chile 61.00% 40.00% 12.10% 66.50%

Eletrobrás Brazil 65.00% 42.00% 23.30% 64.50%

Enersis Chile 37.00% 18.00% 8.70% 47.85%

92.00% 68.00% 22.58% 82.80%

* Unaudited by M&E. Rating relies on data provided by company.

Sustainability Ratings of LatAm Large Oil/Gas Corporations 2011
Petrobras still the one to beat Petrobras Brazil Compliance Percentage Performance Percentage Risk Score Percentage M&E Final Score & Rating Percentage 86.62% 77.00% 21.15% 84.47% Pemex Mexico 86.00% 32.00% 11.00% 72.90% Ecopetrol Colombia 59.00% 36.00% 20.80% 60.90% YPF Argentina 47.77% 46.00% 25.13% 58.60% OGX PET Brazil 39.00% 9.00% 64.70% -9.00%

* Unaudited by M&E. Rating relies on data provided by company. **Not rated because total score was negative Source: Management & Excellence

Jones Sustainability Index (DJSI), saw an improvement. The DJSI gained 8.1% this year through April 1, versus a 5.4% rise in the MSCI world index. As with last year, only five regional companies in both sectors provided enough data to be included in the survey. Cox says that many companies talk about having policies to promote sustainability, corporate governance and transparency, but keeping a record is another matter. Weaker companies are not necessarily poorly managed, but rather suffer from

perform poorly. In the DJSI, only Brazil has any significant representation with seven companies. Even Brazil is not among the top nine countries represented in the index. The top regions are the US, Europe, Japan and Australia. Though M&E does not collect data on other emerging markets, Cox points out that other large developing economies such as Russia are “in the dark ages” in terms of management quality, and that LatAm compares favorably. There are also signs of ex-Brazil improvement.

“Pemex and Endesa, if you look at . . . the data they’ve released, you’ll see that the sophistication in terms of financial data, risk analysis and transparency is improving year-on-year,” Cox says. Endesa, along with Eletrobras, Enersis and particularly YPF, are still developing viable sustainability programs, Cox explains, which normally takes 5-10 years to successfully implement. Brazil is also further along in monitoring sustainability, with standards in the other LatAm countries remaining low, Cox says. Brazil’s Bovespa index runs several sustainability indices, he says, including ISE and “Nivel 1 & 2”. In addition, the country has developed a broad array of monitoring agencies, such as the Brazilian Governance Association (IBGC), which publish tough standards. There are regular competitions and rankings for the most transparent companies. Itaú, for example, is the world leader in the banking sector within the DJSI. Cox also points out that seven of the 10 companies have ADRs listed on the NYSE, including all the power companies. This fact does not necessarily entail high scores, but US listing standards do guarantee a certain minimal transparency, and tend to result in more even performance across the areas measured. YPF, for example, is rated only CC-, but does not significantly lag in any individual area. The spread between its compliance and performance scores is only two points, Cox says. At the same time, Cox says a high risk score (25.13%) suggests that the company is not yet implementing sustainability thoroughly or successfully. He points out that its greenhouse gas and other harmful emissions have shown high volatility in the last three years. “And try getting a response from YPF’s PR or IR departments,” he adds. “All these are definite signs for uneven—if not outright poor— management,” Cox says. “Investors need to consider the risks of companies with weak management and insist on either higher dividend streams or expect a capital gain proportionately above that of less risky counterparts, such as Petrobras or even Pemex.” LF

36 LatinFinance

May/June 2011

Latin Finance - May/June 2011

Table of Contents for the Digital Edition of Latin Finance - May/June 2011