Improving transparency in emerging markets


Companies in emerging markets vying for capital from heavy-hitters in the investment world — pension funds, insurance companies, investment banks, hedge funds, and other large organisations — have always had to pay close attention to their corporate transparency because of domestic risks due to political instability or fluxes in the financial and macroeconomic environment. This also means that these companies have more to do to gain international investors’ trust.

A recently released ASEAN Disclosure Index for 2018 by business advisory firm FTI Consulting gives a sense of how emerging and developing countries in South-East Asia are performing when it comes to corporate transparency. The report examined voluntary nonfinancial disclosures of 180 publicly listed firms in six countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam.

The study found that companies in the region fared well on corporate disclosures with an average composite score of 7.8 out of 10 but recommended that companies in the region improve on risk disclosures. Companies were scored in three categories: performance — operating metrics and business strategy; board quality — number of women at the board level, and separation of the chief executive officer and chairman roles; and risk disclosures — environmental, social, and governance (ESG) metrics, number of whistle-blowing incidents, and the availability of stakeholders’ updated information and analyst transcripts.

“Higher risk-disclosure standards are imperative in competing for global capital,” said Amrit Singh Deo, managing director at FTI Consulting in India. “Investors are more likely to pay a ‘transparency premium’ for companies that fare well in disclosing their risk exposures.”

Myron Zhu, Asia-Pacific co-head of private equity at Aberdeen Standard Investments agrees, adding that nonfinancial disclosures make companies a more attractive investment because they are “an indication of good and transparent corporate governance”.

In the wake of the global financial crisis, there’s an expectation for greater transparency in companies. The movement towards integrated reporting is an example. Advocated by the UK-based International Integrated Reporting Council (IIRC), integrated reporting provides a framework to encourage disclosures covering the full range of resources and relationships that organisations use and impact in their quest for long-term value creation. The aim is to ensure financial stability in the markets and sustainable development.

There are several factors for companies to consider when looking to improve their corporate transparency. Here are four key points to keep in mind when it comes to voluntary nonfinancial disclosures:

Look beyond compliance

Higher standards in disclosures are a signal of good corporate governance. Companies should not see it through a compliance lens only. “This is because good disclosure practices are a ‘moving target’, with higher voluntary standards becoming the norm in a few years,” said Deo. He explained that however quickly governments introduce new policies on corporate transparency requirements, the metrics necessary for implementation take years to be introduced.


Board and management teams should benchmark corporate disclosure practices with developed market peers, rather than with other emerging market companies, Deo said. This will keep pushing firms to meet these moving targets. For example, firms in emerging economies can improve supply chain compliance by benchmarking with the UK’s Modern Slavery Act 2015. Benchmarking allows for a higher standard of ESG disclosure for companies that serve global supply chains, even if they are not necessarily required to report them according to local laws.

Start at the board level

Corporate disclosure practices need to be defined at the board level, Deo said. When the board takes a proactive approach to higher standards of risk disclosure — whether by looking at ESG, cybersecurity, or other operational and reputational risks — it acts as a reassuring and positive signal to investors. It also demonstrates superior board and management quality, he added.

Adapt to industry expectations

Certain sectors may have specific expectations of investors. For instance, those in construction, chemicals, or extractive industries may need to adopt more stringent ESG risk disclosure around resource use, environmental safety, and human rights. Companies that rely on extended or contracted supply chains may need to include their contracting partners within the ambit of ESG and risk audits. Progressive companies should proactively disclose these actions.

For a company, the end point in having higher disclosure standards is to attract more investment. Armed with extra information on a company’s nonfinancial aspects, investors can make better-informed decisions.

“Ultimately, these parameters and metrics are a telling revelation of the risk culture within the firm,” Deo said.

Alexis See Tho is an FM magazine associate editor based in Malaysia. To comment on this article or to suggest an idea for another article, contact her at