2020 TCSA Results and Analysis – Governance Aspect 

Author: Prof. Cheng-Li, Huang, the Chief of TCSA Governance Dimension Group 

2019 was a glamorous year for Taiwanese companies in corporate governance. There were 23 Taiwanese companies listed in the Dow Jones Sustainability Index (DJSI), including 22 companies listed in the DJSI-Emerging Markets index, ranking first place worldwide. 15 Taiwanese companies have been listed in the DJSI World Index, ranking seventh place worldwide. Taiwan has seen outstanding performances in its semiconductor, telecommunications, and financial services industries. In 2019, Taiwan was elevated to “regular follow-up” level, which is the best level, in the mutual evaluation report published by Asia/Pacific Group on Money Laundering (APG). In the capital markets, retail investor transactions in 2019 dropped to 58%, domestic institutional investors rose to 14%, foreign institutional investors increased to 28%, and foreign capital ownership accounted for about 40% overall. Institutional shareholders place increasing emphasis on environment, social, and governance (ESG) issues, an increasing number of institutional investors incorporate ESG indicators into their investment strategies. Due to the changing structures of capital 

markets, an era of shareholder activism has emerged, and the communication model has evolved to address these changes, which further initiated an urgency of reformation in corporate governance. 

In the survey on corporate governance this year, through the efforts of the government and the private sectors in transitioning from Corporate Governance version 1.0 to 2.0, as well as mutual learning and knowledge exchanges between companies, Taiwanese companies have implemented a considerable extent of stakeholder communication, material topics development, ESG target setting and management, enhance the completeness and effectiveness of the board of directors, and the establishment of risk management mechanisms. The emergence of many companies with outstanding governance structures will make it challenging to select a winner from the evaluation processes. The top-ranked companies may benefit from the three aspects of their efforts: first, the degree of integration of sustainability strategy and value creation. Through the analysis of the input and output metrics of various capital investments in response to the United Nations Strategic Development Goals (SDGs), a clear blueprint for corporate sustainability structure is created. Second, the sophistication of communication. The formatting of CSR report, as 

well as the information, communication, connection, stakeholder engagement, and graphical design on the website, may affect the results of the evaluation. Third, the degree of globalization. The “assessment of climate risk” has a critical impact on the sustainable operations of modern enterprises, including the organization’s support for the “Task Force on Climate-related Financial Disclosures (TCFD),” which discloses the risks and opportunities that climate change may bring, as well as the organization’s participation and efforts in the “Carbon Disclosure Project (CDP).” In addition, the compliance by supply chain management of organizations in the electronics industry towards the code of conduct set out by the Responsible Business Alliance (RBA). 

Taiwanese companies have adopted the guidelines of the Global Reporting Initiative (GRI), as their sustainability reporting guideline. GRI standard accounts for multiple stakeholders and discloses the organization’s sustainable information to all relevant parties. In recent years, responsible investment has gradually become a prominent force, facilitating the emergence of sustainable disclosure frameworks designed specifically for investors. The SASB Standards formulated by the Sustainability Accounting Standards Board (SASB) provides key disclosures and sustainability-oriented indicators customized for investors according to sustainability indicators that have significant impact on finance for different industries. With the promotion of the standards by investors, the framework has gradually become the mainstream of ESG disclosure. Corporate governance version 3.0, which will be launched in 2021, will stipulate that listed companies’ requirements in reference to the relevant sustainability aspects of SASB and TCFD in their annual reports, disclosing its corresponding financial impact. It is foreseeable that Taiwanese companies will make early preparations to adopt to the new standards, and jointly contribute to becoming global benchmarks in corporate sustainability.