Loan = Opportunity
Sustainable development has attracted much global attention in recent years. Within the UNDP framework, various sustainable development targets have been set up, along with instruments and processes to help governments and other actors achieve them.
ESG is one of the processes for achieving sustainable development targets. It is also a tool often used by investors to support their investment decision-making. As a result, many companies attach great importance to ESG. They strive to improve their current ESG performance or embrace ESG for fear of falling behind.
On the road towards sustainability with many questions and uncertainties ahead, Mr. Piyasak Ukritnukun, Managing Director of Ngern Tid Lor Public Company Limited, commented that, “ESG may be just a buzzword. We are still unclear about what we want to achieve and how to achieve it. It depends on which dimension makes the most noise, and it will get the most attention. I think ESG is more of a definition or framework used by financial investors when making investment decisions. But UNDP’s 17 Sustainable Development Goals are much greater.”
Piyasak explained that uncertainties are created because people tend to focus on form over substance. He exemplified that the G in Corporate Governance is really about a division of responsibilities of the BOD and management, and shareholders and employees, whose roles and duties should be clearly defined. However, few people are aware that they make different decisions, when wearing different hats.
“For example, I am a BOD member and also a management officer. In terms of Governance, I need to wear different hats: one that acts in the best interest of shareholders and another that protects the interest of employees and the business. However, in terms of business, everything we do has an impact on society and the environment. I have to make choices every day that take into account all these factors. I have to find a balance that satisfies every party amongst the ambiguity.”
“In theories and textbooks about Governance, a Chief Executive Officer (CEO) and a BOD chief should not be the same person. However, many company founders in Thailand and America serve in both positions. I am not sure whether this actually works but 20-30 successful companies have been doing just that.”
“Sometimes, there are conflicts in ESG context. For example, we want to approve a loan for a coal seller to help their business roll forward. However, foreigners say that burning coals adversely affects the environment. At the same time, our social beliefs compel us to give this group of people the opportunity to access funds. This becomes difficult to decide sometimes. Things are more complicated than allowed by a short definition (sustainability). Many people do not deeply look at the details.”
“You can say you will avoid investing in companies that produce weapons, cigarettes and alcohols, or casinos. But these companies are still around after tens of years. Investors want to make money and these businesses produce great profits. There is an inherent conflict here; ESG can work to a certain extent but not a hundred percent.”
Piyasak believed that: “In the end, it depends on how much people do or do not believe in ESG and which theories they choose to believe. There are many theories to choose from. For example, Warren Buffett argues that companies should not assign their investors’ money to CSR activities and should instead prioritize shareholders’ returns to let them donate to good causes themselves.”
When a society emphasizes form over substance, practices become even more challenging.
ESG – A Mechanism That Reverse to Market Logic
ESG is about sustainability and takes the long time to yield results where most market mechanisms prioritize short-term returns. Piyasak argued that it is difficult to use ESG or sustainability as a basis for investment decision-making. Market mechanisms aim to meet short-term targets, meaning that if a firm fail to meet its quarterly profit target, the stock’s price falls down. An army of analysts are appealing while investors want to dump shares. So, what are the incentives for the BOD and management? It is complicated. We want the long-term sustainability, but this goal runs counter to 3-6 month indictors including profit and bonus. Therefore, to achieve an ESG success, it is important to have incentives as motivation to produce results.
The second difficulty is that although there is motivation to produce results in the next 10 years, no one knows whether the actions taken will lead us to better things. We can see directions, but it is hard to predict results because we are not the experts. Take electric vehicles, for example. Company A said hydrogen-powered vehicles are more efficient while Company B said coal-powered cars are better. In the end, Company A was wrong, and no momentum was happened. Once it had invested millions of dollars, there was no going back. It is hard to predict the outcome.
Another challenge is that in addition to measuring with short-term mechanisms, board member terms are only two years. As the company’s shares constantly change hands, new shareholders come and board members get replaced, meaning it is difficult and challenging to drive sustainability in the long-term.
“ESG is like microfinance in that it cannot produce immediate results. Rather, it requires collaboration to instil knowledge and understanding in young children. It is difficult to expect that people who have grown up in a different context will change their attitude and take sustainability seriously.”
Our Belief: Loan equals to Opportunity
As Piyasak said, “Ngern Tid Lor is a microfinance that helps people access funding. We believe that loan is equal to opportunity because we see how grass root people suffer from informal lending and how unfair they are treated by these lenders. Our business was thus founded on the belief that the more people we help to access the right, fair, and transparent source of funds, the stronger our society will become.”
People’s quality of life improves if they have fair, transparent, and equitable access to financial products and services. What makes a high inequality society different from middle-income society is the unequal opportunities.
A study showed that it would take a low-income family 20 years frictionless to climb up to become the middle-income.
“Ngern Tid Lor is not trying to pull people out of poverty. Our stance is that as they climb up a social hierarchy ladder, Ngern Tid Lor will help their lives move forward if they stumble over obstacles (e.g., accidents, illness, tuition fees, etc.). Hence our slogan: “Life Rolls Forward.” However, their choices in life are theirs, and many choices are not about money, but discipline, consciousness, patience and diligence Ngern Tid Lor cannot give the people these. We give them opportunities to allow them to move forward. When they step up into the middle-income and are able to access banking services, they do not need to return to us. Of course, this will also make us happy.”
Piyasak stressed that, “This is only our mission. We also continue to think about the future plan and how we will advance further. We start from helping them move forward, how we can reduce their financial costs to help them become middle-income a little faster. However, our stance remains the same: we will not instantly pull them up or earn money for them. We will be a tool to enable them to make their lives roll forward.”
The fact that the company has been listed on the stock exchange and has a large number of shareholders makes Corporate Governance crucial. It needs to be aware that most of its funds come from other people. And we are responsible for taking care of money. What the company does will reflect what the owners of the money want. It needs to be transparent and accountable. At the same time, because it is licensed by the Bank of Thailand (BOT), there are other aspects of governance to be considered.
In terms of Environment, ESG has become a hot topic this year. The company has to analyse its spending and figure out how to improve efficiency and reduce wastage. It needs to think about green materials for signs for over a thousand branches and clean energy for more than 400 company cars, as well as climate-friendly alternatives such as solar cells.
Piyasak said that what makes ESG difficult is that every business activity has a social and environmental impact. All decision making must take these dimensions into account. Even with textbooks and theories, most people focus on form over substance. We need to find a balance.
Ngern Tid Lor’s 4 Goals for SDGs
When it came to Ngern Tid Lor, Piyasak said that finding a balance is quite straightforward. They set 4 tangible goals for SDGs:
- Reduce Poverty and Inequalities
- Promote Quality Education
- Promote Decent Work and Economic Growth
- Develop Industry, Innovation and Infrastructure
Reduce poverty and inequalities by pushing regulators to demand every microfinance company submits information to the Credit Bureau to develop create a database and opportunities for more people to have access to funding. We should strive to design products that are right for customers. In fact, we know there are things we could do that would bring more profit, but we choose to do the right thing. Walk the talk is important.
Promote Quality Education both directly and indirectly. Directly, we have initiated community financial literacy programs. Indirectly, we believe that if we could make people not worried about money and are able to offer them low interest rates, they will see education important and set aside money for the education of their children.
Promote Decent Work and Economic Growth. Ngern Tid Lor has more than 6,000 employees. We help employees make financial plans for retirement, allowing them to save enough money and avoid becoming a burden to their children. We have also created opportunities for them to grow and care for them in many areas, such as setting up a financial clinic.
“Caring for employees is alike walking the talk. Everyone asks why we take good care of them. We do it because we want to return their hard work and dedication. This is our principle. We try to set an example and inspire other companies to do the same and integrate it into their corporate culture.”
Develop Industry, Innovation and Infrastructure. To provide people with inclusive access to financial services, innovation is a key. What happens is what Ngern Tid Lor does, others follow. For example, many people cannot afford car insurance. When an accident or unexpected cash problem happens, their lives become more difficult. Therefore, Ngern Tid Lor made car insurance more accessible with 0% instalments. When they saw our success, our competitors started to do the same. Now, no one has to pay interest for buying insurance anymore. We drive society and lead changes through our innovation.
“Technology is important. A big obstacle for people who want to access funding is cost, especially for those who need small loans. If they do not charge high interest rates and fees, service providers will not make profits. Investing in technology will reduce service fees, making it possible to reach customers in rural areas who need small loans. We can then use the profit that technology makes in one area to support another area until the cost is covered. However, this requires patience because it takes long time to yield results.”
Ngern Tid Lor took 10 of years to see tangible results. Over the past 3 or 4 years, we have also been questioned by analysts on why our cost was so high.
However, our innovation developers felt that what they have invented benefits for society and that they are helping other people. This point is important because they could work anywhere with the same salary, but they choose to work with us to create impact. Compared to other companies that offer the same salary for much easier jobs, the belief in benefiting others in society adds value to their salaries and is the magnet that attracts people to work with us.
It is the same for infrastructure. We are pushing the Credit Bureau to become a large data infrastructure, creating Thailand 4.0 or whatever requires data. Ngern Tid Lor is trying to set an example for others to follow. We are not doing this for the sake of the company, like lending. Collecting and submitting information to the Credit Bureau incurs cost. Even if it is not what shareholders want, it is something that should be done.
“Our goal is to reduce poverty and inequality for a million customers and we have already submitted the information of 2 or 3 million people to the Credit Bureau. We have helped 90% of our employees to apply for provident funds as a tool for savings for retirement. We will try to encourage them to save more. In addition, we have set up a financial clinic to help them manage their money and educate them about finance. We do not have numerical indicators; we only look at comments and assess the situation qualitatively. This is enough to make us happy with what we have done and to keep on doing it.”
Piyasak said: “We tell people explicitly about what we think we can do. If you have time, go and read our letters to our co-owners of Ngern Tid Lor. We have tried to affirm our corporate identity. We have communicated to shareholders that:
“We want to tell shareholders and investors that if they don’t agree with what we are doing, they don’t have to buy our shares. We welcome suggestions and comments, but the ultimate decision rests with us and the BOD as a representative of the shareholders. Also, Shareholders do have the right to consider shares from any other companies. They don’t have to buy ours. This is our stance.”
Piyasak talked about Apple to exemplify his point, “Apple produced chargers from eco-friendly materials, but this made the cost higher. They had two options: lowering the margin or increasing the charger price. While shareholders may complain about higher cost and consumers may upset about a more expensive product, Apple insisted on going green because it reduced their carbon footprint. The company said they respected investors’ right to switch to other company’s stocks and consumers’ rights to buy from other brands because they have a choice. But if they wanted to use Apple, they had to buy what they designed.”
Right now, we can say that shareholders of Ngern Tid Lor are happy as long as they get what they want. Each person has a number in mind for the rate of growth. And Ngern Tid Lor can achieve or exceed the number. But if we fail to reach the number, and they plan to take some actions, the progress towards sustainability would not last long. Management face more challenges and difficulties as shareholder demands growth increase.
“I have read hundred pages of ESG survey report. It reflects some misunderstanding. It is well-intended but overemphasizing form over substance has wasted what has been done, time, and costs. I am not sure if I will be comfortable getting high scores from other people, but I will sleep well knowing that when I wake up, I will make the world and this society a better place. I don’t have to measure myself by other people’s rules.”
Source: Thaipublica