Emerging Markets

On December 2, MSCI ESG senior analyst Olga Emelianova will present “Green is the New Black,” a webinar on environmental, social and governance (ESG) issues in the global apparel retail sector. (Click here to register for this free event.) While every business faces some universal ESG issues, some concerns are especially relevant to Adidas, The Gap, and their global sector peers.

On October 1, a revised version of China’s State Secrets Law went into effect.  Although little reported in the West, the revised law has serious implications for information and communications technology companies operating in China.  The update includes an article holding network operators and internet service providers (ISPs) responsible for censoring content and turning violators over to authorities.

China’s definition of “state secrets” continues to encompass citizens’ reporting of government corruption, malfeasance, and labor and environmental abuses. ISPs were already required to hand user data over to authorities if “state secrets” were involved, but now they will be expected to actively search user data for “secret” content. Perhaps in anticipation of the new rules, the Telegraph (UK) reported that state-controlled wireless provider China Mobile had begun monitoring the content of users’ text messages earlier this year.

If publicly-traded firms comply with the new law, will investors be complicit in repression? Human rights observers report that the Chinese government has repeatedly detained ordinary people who pass on “secret” information. Complicating the picture for investors is the fact that some state-controlled Chinese firms, like China Mobile, are also publicly traded.

Forty-eight years ago this week, President Kennedy summoned Americans to put a man on the moon. Today we need a new Apollo project to re-launch our economy and protect our planet.

This 21st century race features the United States against a new rival, China, which recently surpassed Japan as the world’s second-largest economy and the U.S. as the world’s largest carbon emitter. Both countries face a common adversary in global warming, which shows no respect for politics or international borders.

After ten days of escalating public debate in which the Saudi Arabian government threatened to ban BlackBerry services because of security concerns, the Kingdom relented on August 9. Other governments have also expressed concern over BlackBerry’s stringent data encryption, including the United Arab Emirates, Algeria, Kuwait, Indonesia, India and Lebanon. The UAE has announced a ban on BlackBerry services as of October 11, and India has threatened to suspend all services unless  Indian authorities get access to encrypted communications by August 31.

Some governments believe that access to private communications is a necessary security measure. Critics maintain that Saudi Arabia and the UAE are at least partly motivated by a desire to limit freedom of expression and strengthen their already strict policing of the internet for political content.

This is the latest in a series of “tense standoffs” between governments and private corporations over questions of individual rights and national security, as described by a July 2010 ESG Insight article. Such conflicts include Google’s faceoff with China over questions of internet censorship and Nokia Siemens Networks’ provision of “lawful intercept” capabilities to Iran, which allegedly allowed authorities to monitor and censor internet traffic during the disputed June 2010 elections.

Saudis, Others Want the Same Access as US, Canada

Along with questions about whether Western companies should provide surveillance capabilities to undemocratic regimes, these disputes also highlight a possible double standard. Nations like the US and Canada, home of BlackBerry maker Research in Motion (RIM), are largely understood to have access to personal internet traffic. The US has an advantage in that many encrypted email services such as Gmail and Yahoo have servers on US territory, rendering them subject to court-ordered disclosure.

From WikiLeaks to the “Facebook spy,” government exposure through new media outlets has made headlines this summer. The Internet’s capacity for spreading information threatens secrecy, and thereby weakens the power of those who hold secrets, whether they’re individuals, companies, or governments.

The tense relations between China and Google, among other foreign firms, have shown how a government’s desire for secrecy and control of its citizens can conflict with its need to participate in the global information economy. In January 2010, the US-based search giant balked at Chinese government demands for Google to censor its google.cn search results. Google had in fact previously complied with such demands, but starting in March, the firm automatically redirected visitors to google.com.hk, its uncensored Hong Kong-based site.

In July, however, the two sides compromised. As reported by CNN, Google will retain its license to operate in China, and Chinese users will retain access to google.com.hk. So what grand bargain resolved what the New York Times called a “tense standoff”? Nothing more than an extra click: Chinese google.cn users must now opt to see uncensored google.com.hk results.

A dispute over oil rigs in Venezuela shows that not all the risks of oil drilling are environmental. On June 24, Reuters reported that the Venezuelan government has seized 11 rigs from Helmerich & Payne, an American drilling services firm. The Texas-based company had stopped production at the rigs and said that Venezuela’s state oil company, PDVSA, owes it about $43 million.

RiskMetrics ESG Analytics Oil & Gas Sector analyst Dana Sasarean says that oil services firms face political and security risks worldwide:
 

This week, a New York Times report has added to the discussion of Afghanistan’s fate with a survey of the nation’s potential mineral wealth. As Afghanistan contemplates its possible future as a mining economy, its leaders could learn from other poor – but resource-rich – nations around the world. In too many cases, mineral wealth has done little to improve the well-being of ordinary citizens. Instead, resource extraction has just enabled rent extraction: powerful local interests, including landowners and governments, have tended to cut lopsided deals with foreign customers. Tremendous amounts of wealth may change hands, while most citizens remain poor.

The Extractives Industry Transparency Initiative (EITI), a multi-stakeholder effort to raise standards of disclosure worldwide, has tried to shed light on such unbalanced arrangements. EITI’s eight-year history suggests that Afghanistan faces a difficult journey towards broadly-shared, mining-based prosperity.

[Ed. Note – On June 21, Access to Medicine Index 2010, which ranks major global pharmaceutical companies on their efforts to increase global access to medicine, will be released to the public. Index 2010 is an initiative of the Access to Medicine Foundation, a Netherlands-based non-profit organization dedicated to improving access to medicines to societies in need. Click here to learn more about the Foundation. UPDATE: The Index 2010 report is available for download here.

The Access to Medicine Index is the brainchild of Wim Leereveld, a Dutch entrepreneur with extensive experience in the global healthcare sector. Supporters of the Access to Medicine Foundation include the Dutch and UK governments, among other charitable organizations and NGOs.

As with the first Access to Medicine Index in 2008, Index 2010 was researched by a dedicated RiskMetrics ESG team, led by Senior Analyst Afshin Mehrpouya. Click here to learn more about Index 2010’s methodology, including the companies, countries, and diseases that Index 2010 considers.

Mr. Leereveld graciously agreed to share some of his thoughts on Access to Medicine with ESG Insight readers. We appreciate his participation, and the efforts of the entire Access to Medicine team.]

A recent Economist feature considered the role of business in managing the world’s water supply. Industrial production of goods – from soft drinks to microchips – consumes far more water than agriculture, and competes with other uses in arid climates worldwide.

Water is a human necessity, but is it a human right? If so, should access to water be guaranteed by governments? This question engages the United Nations, and governments in both poor and wealthy nations. There is growing evidence, though, that even without an “official” declaration of water’s special status, businesses will be compelled to help ensure access to water.

From the Appalachians to the Gulf of Mexico to China, industrial workplaces have dominated headlines in recent months. Globalization has reduced the power of developed-world labor and stretched supply chains around the world. This has complicated workers’ efforts to ensure workplace rights and safety.

Last month, RiskMetrics’ New York office hosted “Labor Organization in a Global Economy,” a Sustainability Practice Network event. This panel discussion explored the role of traditional unions in today’s US economy, along with new approaches to managing and improving the global supply chain.