Winners ALAS20 for 2019, Brazil

Introduction

The results of ALAS20 Brazil for the year 2019 were published on December 2nd, 2019.

The Sustainable Leaders Agenda 2020, ALAS20 is a programmatic agenda that seeks to promote sustainable development in Latin America from business management and investment decisions, as an effective way to achieve a more sustainable, equitable and inclusive world. In 2019, ALAS20 has been carried out for the sixth consecutive year in Chile, and for the fifth year in Peru and Colombia, and for the fourth year in Brazil and Mexico.

COMPANY WINNER ALAS20 FOR 2019, BRAZIL

itau

ITAU UNIBANCO HOLDING

The ALAS20 Company category is the most important category to which a company can aspire in the 2020 Sustainable Leaders Agenda, since it is granted only to one final company which demonstrates leadership, consistency, and excellence in the public disclosure of information about its investor relations practices, sustainable development, and corporate governance.

The company selected in the Company ALAS20 category is determined among the three winners of the selected categories (Sustainability, Corporate Governance, and Investor Relations), based on the results of each of the three winners in each of the categories, weighting their qualifications according to the following criteria:

Leading Sustainability Company: 40%
Leading Company in Corporate Governance: 35%
Leading Company in Investor Relations: 25%

IMPORTANT: Selection of winners of ALAS20 and existence of controversies in the categories of COMPANIES.

Any company that is subject to technical evaluation in the Sustainability and/or Corporate Governance categories, and that is nominated for recognition in ALAS20, either as ALAS20 Company or as Grand Prix Company ALAS20, will be reviewed based on the methodology that It has been used in Vigeo Eiris Best Performers Ranking. This means that companies will be reviewed to determine if they are involved in recurring and/or critical disputes, and whether these companies provide (or not) visible evidence of corrective measures or to engage with stakeholders. In the event that Vigeo Eiris verifies that a company Nominated in ALAS20 is involved in recurring and/or critical controversies, and in the event that said company does not provide visible evidence of corrective measures or measures to engage with interested parties in the solution of the controversy, such company will be excluded from the ALAS20 Ranking.

To know the details of the methodology that Vigeo Eiris uses in the Best EM Performance Ranking, you can access page 5 of the following link.

Winner Companies

Category Leader Company in Sustainability

Winner: Santander Brasil
2nd EDP Energias do Brasil
3rd Itau Unibanco Holding
4th Engie Brazil
5th Fibria
6th Natura
7th Klabin (tie)
7th Weg (tie)
8th Renner Lojas

Exclusions List due to controversies

B3: The Company faced one controversy of critical severity in 2019 regarding internal controls. The Brazilian stock exchange received a fine for internal audit issues regarding a merger accounting dispute in which the company did not exhaustively report related corrective measures.

Importance
Public disclosure of sustainability information is one of ALAS20 main areas. The importance of this category lies in the fact that it allows to know the environmental, social and corporate governance practices of companies, which are made available to their stakeholders in terms of explaining the background on how they are acting in favor of sustainable development.

Evaluated Dimensions
The dimensions evaluated in this category are the company’s policies, practices and results regarding its human resources policies, respect for human rights, environmental protection, its commitment to the community, its behavior in the markets, and its corporate governance.

Findings
The companies evaluated in the Leading Company in Sustainability category achieved an average score of 45.2 points on a scale of 0 to 100 points, which represents an improvement of 2.5 points compared to 2018 (42.7). The score of the 10 Brazilian companies nominated is relatively slightly homogeneous, with a standard deviation of 6.3 points. While the average score of the Top 5 of the best performing companies was 50.8, and with a relatively homogeneous behavior and a standard deviation of 2.1 points. Of the ten nominated companies, Banco Santander Brasil, EDP Energias Do Brasil and Itaú Unibanco holdings, obtained a robust score (between 50 and 59 points) while the other seven companies obtained limited scores (between 30 and 49 points) led by ENGIE Brazil and Fibria.

This year, among the different dimensions evaluated in the technical evaluation, the one that shows a better performance is Market behavior, with an average of 50 points, although with an uneven behavior, with a standard deviation of 8.3 points. In this dimension, Fibria was the company with the best performance, being the only one that obtained an advanced score (60 points or more). This in contrast to last year’s evaluation, where the best average rating of the companies was achieved in the dimension of respect and promotion of Human Rights in the activities of the company, which this year earned an average of 49.6 points.

The Human Resources domain presented the lowest score, with 39.6 points average, one point lower than last year. Of all the companies nominated this year, the highest score in this dimension was EDP Energías Do Brasil with a robust score (between 50 and 59 points). Of the rest of the nominated companies, eight obtained a limited score in this dimension (between 30 and 49 points) and only one obtained a weak score (between 0 and 29 points).

Regarding the dimensions of Environment and Community Involvement, an average score of 48.2 and 48.7 points respectively was obtained. Itaú Unibanco Holdings stands out with an advanced score (60 points or more) in Environment, while, in Involvement with the Community, Fibria and Natura obtained the best performance with advanced scores.
Finally, in the Corporate Governance dimension, the average score of the nominated companies was 40.5 points, which corresponds to an improvement of 6.4 points compared to 2018. The best performance in this dimension was Banco Santander Brasil with a score robust (between 50 and 59 points).

Category: Leading Company in Corporate Governance

Winner: Santander Brasil
2nd Renner Lojas
3rd Itau Unibanco Holding
4th EDP Energias do Brasil
5th Weg
6th Engie Brazil
7th Klabin
8th Bank of Brazil
9th Usiminas

Exclusions List due to controversies

B3: The Company faced one controversy of critical severity in 2019 regarding internal controls. The Brazilian stock exchange received a fine for internal audit issues regarding a merger accounting dispute in which the company did not exhaustively report related corrective measures.

Importance
This category allows to know companies’ corporate governance practices and transparency in reporting to stakeholders in the manner they disclose background information on how practices are being directed and controlled.

Evaluated Dimensions
The dimensions evaluated in this category are the composition and operational rules of the Board of Directors, the audit and internal control systems, the respect of the rights of the shareholders, including minority shareholders, the transparency of the senior remuneration systems for executives and the relevance of the criteria that compose them.

Findings

Of the ten companies nominated in the Leading Company in Corporate Governance category, two companies, Banco Santander Brasil and Lojas Renner obtained a robust score (between 50 and 59 points), five obtained a limited score (between 30 and 49 points) and three obtained a weak score (between 0 and 29 points). The average score was 36.5 points on a scale of 0 to 100 points, which represents a deterioration of 3.6 points compared to 2018. This year, the score in this category shows a slightly homogeneous score, with a standard deviation of 9.4 points.

Regarding the analysis of the composition and the rules of the operation of the board, the average score obtained by the companies evaluated was 42.3 (3.8 points less compared to 2018) with an uneven behavior, with a standard deviation of 13.2 points. Banco Santander Brasil leads the ranking with an advanced score (60 or more points).

When analyzing the audit systems and internal controls, Lojas Renner and Itau Unibanco Holding obtained advanced scores (60 points or more), one company obtained a robust score (between 50 and 59 points), four companies obtained limited scores (between 30 and 49 points), and three companies weak scores (between 0 and 29 points). The average score obtained by companies in this area was 42.3 points (1.7 points less compared to 2018).

Regarding the systems implemented to ensure respect for shareholders’ rights, the average score was 44.7 points (3.6 points less than in 2018) with a standard deviation of 12.9 points. Only WEG obtained an advanced score (60 or more points) in this dimension, three companies obtained robust scores (between 50 and 59 points), four companies obtained limited scores (between 30 and 49 points) and two obtained weak scores (between 0 and 29 points)

Like last year, there are still opportunities to improve practices in terms of transparent corporate rules that define the salaries of the highest executives of companies, considering annual compensation, medium and long-term incentives, and information on how the rules for defining incentives include social, environmental and economic criteria. The average score for this dimension was 17.5 points (an improvement of 1.3 points compared to 2018) with a standard deviation of 12.6 points. On this issue, only Banco Santander Brasil and Lojas Renner obtained a limited score (between 30 and 49 points), while the eight other companies obtained a weak score (between 0 and 29 points).

Category: Leading Company in Investor Relations

Winner: Itau Unibanco Holding
2nd Engie Brazil
3rd B3
4th Natura
5th Renner Lojas (tie)
5th Klabin (tie)
6th Weg
7th EDP Energias do Brasil
8th Gerdau (tie)
8th Santander Brazil (tie)

Importance
This category allows to evaluate the disposition and professionalism of the company in its interaction with the key agents of the capital market, such as investors, financial analysts, and regulators. The relevance of this category lies in the fact that it allows us to know how companies make corporate information available for investment decisions, and investment recommendations for third parties, among other actions that can generate an economic impact for the capital market in interest groups.

Evaluated Dimensions
The dimensions evaluated in this category are the accessibility to the department or area of investor relations, the quality of communication in the annual reports and website on key issues of corporate governance, strategy and the most relevant indicators on financial performance, economic performance and in sustainability. Tools implemented to allow investors to continuously monitor the evolution of the company in these areas are also evaluated.

Findings

The average in the Leading Company in the Investor Relations category obtained by the ten qualified companies is 56.6 points, on a scale of 0 to 100 points, representing a deterioration of 12.4 points compared to 2018. This is due, among other factors, to the change in the methodology used to evaluate this category, which has increased its level of assessment in 2019. Four companies obtained an advanced score (60 points or more points), four companies obtained robust scores (between 50 and 59 points) and two companies obtained a score limited (between 30 and 49 points).
In this category, the practices shared by most of the companies evaluated are: the existence of a team in charge of investor relations, even with some companies stating that the CEO or CFO is directly responsible for this area, the publication of biographies of the members of the Board of Directors, and the identification of the members considered independent.
Most nominated companies also publish their financial indicators, but only one reports future goals for these indicators. Less than half of the companies reported on their competitive position in the markets in which they operate, and although most report the risks the company faces, none report these risks by differentiating their relevance.
Most companies communicate KPIs regarding Environmental, Social and Corporate Governance (ESG) issues, and the incorporation of these challenges in general communications to the capital market.

WINNER INSTITUTION ALAS20 FOR 2019, BRAZIL

itau asset management BrasilITAU ASSET MANAGEMENT

The ALAS20 Institution category is the most important category to which an investor in the 2020 Sustainable Leaders Agenda can aspire, since it is granted only to an investor, one who demonstrates leadership, consistency, and excellence in the public disclosure of information regarding their relationship practices with responsible investments, corporate governance, and sustainability research.

The investor selected in the ALAS20 Institution category is determined among the three winners of the categories of institutions (responsible investments, corporate governance, and sustainability research), based on the results of each of the three winners in each of the three categories, weighing their qualifications according to the following criteria:

Leading Institution in Responsible Investments: 40%
Leading Institution in Corporate Governance: 35%
Leading Institution in Sustainability Research: 25%

IMPORTANT: Definition of Winners of ALAS20 and existence of exclusions in the categories of INVESTORS.

Any institution that has provided background and information in the technical evaluation stage in the categories of Responsible Investments, Corporate Governance, and Sustainability Research, will be part of the ALAS20 Ranking. Those institutions that have not provided background and information in the technical evaluation stage in these categories will be excluded from the ALAS20 Ranking.

In ALAS20 year 2019, exclusion lists will not be applied for reasons related to controversies in which the institutions nominated in ALAS20 may have been involved; However, the ALAS20 technical team will evaluate the application of exclusions for disputes as of 2020.

Winners in the Investors category

Category: Leading Institution in Responsible Investments

Winner: Itau Asset Management
2nd Votarantim Asset Management
3rd Bradesco Asset Management
4th Santander Brazil Asset Management

Exclusions List due to non-delivery of information

Constellation Asset Management
Crescera Investimentos
Oceana Investimentos

Importance
This category allows the evaluation of environmental, social and corporate governance (ESG) criteria, which are considered by institutional investors, either in decision making or in their investment recommendations. This category also assesses how institutional investors publicly make available to their stakeholders the background on the sustainability criteria they use to evaluate their investments, for example, in the companies that are subject to them.

Evaluated Dimensions
The dimensions evaluated consider the integration into the strategy and processes of investment of environmental, social and corporate governance (ESG) criteria, to choose the companies investment destinations, in line with the Principles of Responsible Investment of the United Nations (UN PRI).

Category: Leading Institution in Corporate Governance

Winner: Bradesco Asset Management
2nd Itau Asset Management
3rd APEX Capital
4th Vinci Partners Investimentos Ltda.

Exclusions List due to non-delivery of information

Constellation Asset Management
Oceana Investimentos
Santander Brasil Asset Management

Importance
This category allows to know corporate governance practices of institutional investors, making available to their stakeholders the background information on how the organization is being directed and controlled, in favor of sustainable development.

Evaluated Dimensions
The dimensions evaluated in this category consider how the public information of the institution allows its stakeholders to understand the meaning and value created by the corporate governance policies and practices adopted. Also, how the firm transmits to its stakeholders the adoption of best corporate governance practices, beyond legal and regulatory compliance and how the institution measures the state of progress of its corporate governance strategy and how it provides information that allows comparisons to be made with the practices and policies adopted in previous years; and how it demonstrates its understanding of the benefits of transparency in the dissemination of corporate governance practices for its stakeholders, by delivering evidence regarding the adoption of best practices in this area.

Category: Leading Institution in Sustainability Research

Winner: Itau Asset Management
2nd Bradesco Asset Management
3rd Santander Brazil Asset Management
4th Vinci Partners Investimentos
5th Apex Capital

Exclusions List due to non-delivery of information

Constellation Asset Management
Oceana Investimentos
Santander Brasil Gestao de Recursos

Importance
This category allows to know the practices of public disclosure of information on studies and research related to sustainability and responsible investments made by investment institutions, as a contribution to new and valuable empirical evidence to facilitate the decision-making process for the community of investors.

Evaluated Dimensions
The dimensions evaluated in this category consider how the investment institution achieves a deep understanding of the impact of sustainability for the markets, and how it manages to meet the information requirements in this area by its stakeholders. The institution must demonstrate that it has reported information in the main areas of sustainability research, which are of interest to the capital market. Moreover, the institution must demonstrate that it conducts consistent and well-founded research, also demonstrating independence and objectivity, through a systematic analysis that contributes impartially to the understanding of the companies and organizations that are subject to research. In its analysis, the institution must be backed by valuable empirical evidence considered a contribution to the decision-making and investment recommendations processes, also demonstrating how its sustainability research consistently contributes to the development of the capital market.

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