Japan & Myanmar: Kirin’s bold exit from Myanmar is not clean-cut

Just five days after Myanmar’s military seized power in early February, the Japanese brewer Kirin expressed grave concern and announced that it was terminating its five-year-old joint venture with a company controlled by the army, The Financial Times reported on April 12.

Superficially, Kirin’s cutting of ties with MEHL — Myanmar Economic Holdings — looked decisive. The joint venture controls a dominant share of the fast-growing beer market. It was the sort of lead-taking stand that appeared to put ethics over profits, and immediately raised questions about how many of the 400-plus Japanese companies operating in Myanmar would join the retreat.

So far, few have, though they are scouring their supply chains for any trace of military links. The local head of the Japan External Trade Organization is clear that the perceived reputational risk has risen in recent weeks.

The debate over the legitimacy of Japanese or other foreign companies remaining in business through Myanmar’s misery and chaos creates a potentially stern test of the nascent environmental, social and corporate governance or “impact” investment narrative.

The questions posed of individual companies usefully challenge the integrity of their ESG policies. Whether they possess the tools to meaningfully judge the rightness of corporate responses is unclear. The language and good intentions of ESG must demonstrate that, as a steering mechanism for at least $17tn of global investment, it does not force or justify hasty decisions. It must pass this test convincingly, as a potentially greater one is looming in China.

As the violence, death toll and potential for humanitarian crisis in Myanmar have worsened, the US and UK have imposed sanctions on MEHL. Investors in Posco, which also has a joint venture with the company, have called on the Korean steelmaker to follow Kirin’s example.

The advocacy group Justice for Myanmar commended Kirin’s “bold and timely” move and the message it sent to the junta. More broadly, campaigners have demanded with ever more force that multinationals and global energy companies like Chevron and France’s Total reassess their behaviour, investment and presence in Myanmar.

But Kirin’s bold pullout is not clean-cut, and it can be argued that it should have exited long before the coup drew attention to its relationship with MEHL. Early last month, Norges, Norway’s $1.3tn sovereign wealth fund and one of Kirin’s largest shareholders, put the Japanese brewer on its watchlist for possible portfolio exclusion.

Well before the coup, a 2019 report by UN fact-finders highlighted MEHL’s role in funding an army accused of the massacre of Rohingya Muslims and other egregious human rights violations.

By January this year, after suspending dividend payments from its two joint ventures, Kirin said it would produce an action plan by this month, though analysts believe the emphasis was always on saving the investment rather than walking away. The coup forced Kirin’s already compromised hand, and even now its primary aim is to find an alternative partner to MEHL — in a process that may be impractical and drag out beyond a year — rather than quit Myanmar altogether.

The conclusion of the Council on Ethics, the body that advises Norges, was especially blunt. Kirin, it said, has been aware of the risk that revenues deriving from the joint ventures could be used for military purposes from the moment it entered into the joint venture.

As analysts have noted, the Norges decision could prove highly influential in an ESG-sensitive era, particularly to those with fewer resources to undertake the same depth of screening. Kirin’s shareholder register is populated with funds that have made much of the new ESG influence on management style, not least BlackRock, which is the company’s largest holder.

The risk, given this evidence, is in holding up Kirin’s deeply flawed approach as an example for others to follow on Myanmar. A swift break from anything involving MEHL (and other military-linked companies like it) is clearly vital.

But Kirin should not steer the considerable momentum of ESG-themed investment to a thesis that an exit from Myanmar is the only “right” option, while remaining in place and generating economic activity is questionable.

Among the Japanese companies in Myanmar are many that are not remotely linked with any military companies. They can argue that their presence has not only significantly improved the lives of ordinary people, but is critical to the country’s chances of emerging from the deep economic hole into which it is descending post-coup.

The test of ESG is whether it yet has the maturity to distinguish the corporate actions that are best for Myanmar.

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