GovnRisk Index launched

Pakistan Institute of Corporate Governance (PICG) in collaboration with Mettle Consulting, UK on Monday has launched the GovnRisk Index, the first being constituted in an emerging market after successful launches in the UK and USA. The GovnRisk Index identifies, defines and measures governance risks of firms in Pakistan and facilitates well-governed firms in retaining and attracting both local and foreign investment.
The launch, held on the trading floor of the Karachi Stock Exchange, was sponsored by the Institute of Capital Markets. The GovnRisk Index is an innovative suite of metrics that help secure portfolio and foreign direct investment in Pakistani firms by identifying, defining and measuring their governance risks. The index covers six core distinct aspects of governance risk namely corporate culture, internal controls, critical self-analysis, quality of oversight, disclosure and transparency and quality of management.
The index is reported for investors and regulators in the form of a quantitative governance risk index to allow an easy see-through of governance risk by firm, sector, country and region. It is also reported by the firm to enable boards and senior managers to enhance and align their company's governance risk and strategy and provides a competitive advantage for investors in focusing on companies with a relatively lower governance risk. The index delivers industrywide metrics to allow members to measure and manage the gap between their organisation, the sector average and the best in class. Some Pakistani companies including ICI and PPL have already subscribed to the GovnRisk Index while some more local companies have shown their interest to subscribe to the index.
Chairman Securities and Exchange Commission of Pakistan, Muhammad Ali in his keynote address delivered at the inaugural ceremony highlighted the need for companies in Pakistan to compete globally by enhancing their corporate governance standards. More so due to increased competition between global markets to attract capital and the use of various factors by investors to gauge companies that demonstrate a sustainable track record. He said that the timely launch of the GovnRisk Index in Pakistan, following the revised Code of Governance 2012 was an important milestone in helping organisations achieve this goal.
He said Pakistan took the lead in emerging markets to launch the GovnRisk Index. He pointed out that the Pakistan capital market has been the best performing market with average returns of 30 percent as compared to 20 percent returns on gold, 10 percent on PIBs, 11 percent on defence saving certificates and 4 percent on bank deposits. "Despite healthy returns of 30 percent, the investor base could not be increased", he said adding that there is need to build investors confidence on the capital market to improve investors base.
He pointed out that the demutualization of stock exchanges and revised code of corporate governance would help to build investors confidence in the capital market. He also discussed the low rate of new listings saying less than 15 new companies came for listing during the last three years. "We need new companies to be listed on the stock exchange so that trading activities would increase", he said.
He pointed out that an Investment Advisory is being completely changed and a sub-broker regime is being introduced for marketing and distribution in remote areas of the country. Currently, he said, the investor base is very low and the majority of investors are in the three big cities Karachi, Lahore and Islamabad. The sub-broker regime will help to increase investor base to the remote areas of the country, he added.
On a question, the SECP chairman said it is not mandatory for listed companies to subscribe to GovnRisk Index. The British Deputy High Commissioner and Director for UK Trade and Investment in Pakistan, Francis Campbell congratulated PICG and Mettle Consulting on the successful collaboration between the two countries and on the launch of the GovnRisk Index. He said Pakistan is a lucrative market and home to over 600 foreign companies enjoying high return on investments. "The country offers numerous opportunities in financial, retail, energy, security and other sectors", he said. This initiative introduced by PICG and Mettle Consulting will prove to be a useful mechanism to confidently attract investors to this market, he added.
Managing Director Karachi Stock Exchange, Nadeem Naqvi said consideration of Tail Risk has become a key element in determining the overall risk of any investment. He said recent history demonstrates that poor governance is perhaps the biggest trigger of Tail Risk as it is usually hidden from standard risk evaluation metrics. A GovnRisk Index, as proposed by PICG can go a long way in highlighting Tail Risk for investors and business, he added.
PICG President and CEO Fuad Hashimi gave a brief introduction on PICG's role in spreading best corporate governance practices in Pakistan and providing well-governed corporations a platform to effectively communicate to market analysts and investors, locally and overseas, using a trusted and internationally benchmark indicator like the GovnRisk Index.
Dr Andrew Tucker, CEO of Mettle Consulting gave a detailed presentation on the GovnRisk Index, in which he discussed the basis for the index, its methodology and key operational benefits to subscribing companies. "We look forward to working with major companies in Pakistan to prove their superior governance risk levels and so attract regional and global investors to this very exciting market", he said.
Syed Javed Hasan, CEO of Institute of Capital Markets thanked the KSE, SECP, PICG and Mettle Consulting for their support in making the launch a success. He said that the introduction of the GovnRisk Index would have a positive impact on investor confidence and that he looked forward to working with all the stakeholders in spreading awareness to ensure incremental growth in the participation of subscribers to the GovnRisk Index.