The Philippine economy may no longer be the “Sick of Asia”, having registered one of the highest GDP growth rates in the Indo-Pacific region for more than a decade now. Because of more enlightened economic policies and stronger financial institutions accumulated slowly but surely during the last thirty years, we can reasonably expect to grow our GDP by 6 to 7 percent annually during the next five years or so.
That rate, however, even if it may be one of the highest in the region today, is not sufficient in helping the economy to reduce the high rate of poverty incidence still prevailing at 13 per cent, using World Bank standards. The BBM Administration must target at least 8 percent annual growth to generate enough resources to be able to bring down the poverty rate to single-digit levels This would require at least three very important accomplishments: increase the rate of private investment (especially coming from Foreign Direct Investments) to 30 percent or over of GDP; increase the productivity of the agriculture sector so that it can grow at least at 3 percent annually in the next five years; and significantly reduce the leakages due to public and private corruption (estimated by some at P800 billion or more annually) through good governance.
I have written about the first two in previous articles. Let me now address the issue of good governance. There is a healthy world-wide trend towards what is known as ESG investing. E stands for Environment, S for Social and G for Governance. All over the business world, there has been a lot of talk about using environmental sustainability, societal goals and good governance as bases for making investment decisions. What used to be called “impact investing” in the last century was transformed into ESG investing during the present century.
According to the Investopedia Team, Environmental, social and governance (ESG) investing refers to a set of standards for a company behavior used by socially conscious investors to screen potential investments. Environmental criteria consider how a company is able to safeguard the physical environment, including corporate policies addressing climate change such as avoiding fossils-based fuel or helping to plant trees in denuded forests. Social criteria examine how it manages relationships with employees, suppliers, customers and the other stakeholders of a business such as the communities in which it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.
The pros of ESG investing are well known to the investment community which includes such large multinational investment banks as JP Morgan, Wells Fargo, and Goldman Sachs that have published annual reports that extensively review their ESG approaches and the bottom-line results. ESG criteria are very helpful to investors in avoiding the blowups that occur when companies operating in a risky or unethical manner are ultimately held accountable for its consequences. Examples are British Petroleum (BP)’s 2010 Gulf of Mexico oil spill and Volkswagen’s emissions scandal, which rocked the companies’ stock prices and cost them billions of dollars. Recently, however, some ESG approaches have been criticized for having been co-opted by the “woke” culture.
Woke is an adjective derived from African-American Vernacular English (AAVE) meaning “alert to racial prejudice and discrimination.” Beginning in the 2010s, it came to encompass a broader awareness of social inequalities such as racial injustice, sexism, and denial of LGBT rights. Over time, the term became increasingly connected to matters beyond race such as gender and identities perceived as marginalized. It became popular with millennials and members of Generation Z. By 2020, many on the political right in the U.S. and some in the center in several Western countries began using the term sarcastically as a pejorative for various leftist movements and ideologies.
Woke refers to extreme leftist interpretations of otherwise laudable environmental or social objectives of society. For example, some environmental activists refuse to see the positive side of mining, equating it almost with the devil himself. For them there is no such as thing as responsible mining. They fail to see that some amount of permissible environmental damage may be necessary to reap the tremendous economic benefits of mining such ores as copper or nickel. Not only do mining activities contribute to employment and foreign exchange earnings but make possible the metals that are indispensable for the so-called Industrial Revolution 4.0 (i.e Artificial Intelligence, Internet of Things, Robotization and Data Analytics) that is highly dependent on such products as laptops, cellphones, and other digital devices. These metals are also indispensable in the production of solar panels, wind mills, etc that make possible the renewable sources of energy that clean up the environment by making possible the phasing out of fossil fuels.
Sustainability has also received some bad press in the field of development. People from emerging markets that are still struggling to eradicate poverty complain that most of the sources of pollution and other forms of environmental damage have been the developed countries as they industrialized and attained First World status. Only a very small portion comes from the developing world whose leaders are now complaining that they are being asked to shoulder the burden of combatting the ill effects of climate change and are thus being handicapped in their efforts to attain higher standards of living.
As regards social objectives, there is no debate about the all-important need to eradicate mass poverty especially in the developing countries. There is also widespread agreement on racial or gender equality. There is, however, no consensus about other causes such as the right to abortion, same-sex marriage, and LGBT rights. Countries that have strong family values based on religious beliefs oppose ESG efforts to promote what they consider anti-family values. This explains why there are recent serious criticisms of the entire ESG approach to promoting investment. There is, however, still strong support for the ”G” or governance component, especially in the Philippine business community as good governance is equated in many minds to fighting corruption in Philippine society. Good governance in both the public and private sectors will address the roots of corruption that is still one of the main obstacles to economic progress, together with erroneous economic policies and weak institutions. In fact, I have often said in public that the BBM Administration can attain GDP rates of growth of 8 percent or above by concentrating on three objectives: make significant progress in increasing the productivity of the agricultural sector to attain food security; improving the rate of investment to 30 percent or more of GDP; and combatting corruption.
At the forefront of promoting good governance in the Philippines is the Institute of Corporate Directors (ICD), a non-stock, non-profit organization dedicated to the professionalism of Philippine corporate directorship as well as raising the level of the country’s corporate governance policy and practice of world-class standards. The Institute was established in 1999 by Chairman Emeritus Dr. Jesus P. Estanislao in the aftermath of the East Asian financial crisis of 1997 – 2000, which crisis was caused to a large extent by unethical practices of both leading global financial institutions and corporate groups. (To be continued.)