impak Battle : Samsung vs Huawei
About the author: impak, the independent impact rating agency, regularly publishes content providing transparent data on the social and environmental impact of companies. By doing so, it aims to accelerate the transformation towards a stakeholder economy generating an overall positive contribution to society.
The impak Battle
“I have a smartphone too. These devices contain minerals extracted in inhumane conditions. What is the human cost of these objects?” - Dr. Denis Mukwege, Nobel Peace Prize, Oslo, Norway, 2018 (free translation from Le Monde YouTube video). In the global awakening about the role of double materiality in finance—as stated in BlackRocks’ report—and the role of regulations and money managers in the matter, no sector can continue to ignore the impact they have on society and the environment. Because of the intrinsic risks associated with its manufacturing activities, the electronics sector generates important negative impacts in regards to social issues, such as poor labour and working conditions, and workers’ health and safety. Today, the Battle is between two Asian electronics powerhouses: the South Korean Samsung Electronics and the Chinese Huawei, based on their 2019 public data. Which one of them better takes into consideration its social and environmental impacts?
Samsung Electronics 0/500 Ex-Æquo
As with a number of our impak Battle contestants, Samsung lost all its Positive impacts points because of negative impacts which are harmful, and thus rated Z (read more in the section below). This loss of points notwithstanding, the South Korean giant does generate 2 positive impacts. Although both are philanthropic activities, they are rated B - Benefit stakeholders, as per the ZABC (from worst to best) IMP classification. The most significant one, addressing SDG 4: Quality education, represents 0.28% of the group’s activities and relates to the several educational programs developed by Samsung that aim at developing skills within vulnerable populations and youths. The second impact relates to an investment in a Research Funding for Future Technology Program which helps advance SDG 9: Industry, innovation and infrastructure. This impact represents a total of 0.094% of the group’s activities.
Huawei 0/500 Ex-Æquo
Unlike Samsung, Huawei scores zero points in terms of positive impacts, simply because there is no supporting evidence of positive impact generation in its reports. Notwithstanding the lack of evidence, the group has the potential of contributing to positive impacts in relation to at least 3 SDGs. These alleged impacts have to do with its aid in providing affordable, inclusive and accessible healthcare services in China, its educational inclusion programs for vulnerable groups such as unemployed young people and women in Kenya, and its RuralStar solutions that provide effective coverage of mobile Internet services in rural villages around the globe. Note that because of the lack of public quantitative data provided by the Group, these activities were not considered for the purpose of this analysis.
Negative impact mitigation
Samsung Electronics 58/300 Winner
Despite being the winner of this section, there is little to celebrate here since 5 of Samsung's 12 material negative impacts are rated Z (Does or may cause harm, see Methodological notes below). This is the worst Z case in the (short) history of our impak Battles. To sum up, Samsung has 3 Z-rated impacts that contribute negatively to SDG 16: Peace, justice and strong institutions. They include a 2.8 $M USD settlement in 2019 for allegedly cheating on benchmarks tests; a 100 ₩M KRW fine to chairman Kun-hee Lee regarding a fair trade violation scandal, a 29 $M USD fine for price fixing; and finally, a 2.5 year sentence to Samsung’s heir Jay Y. Lee in 2021 for a corruption and bribery scandal involving ex-South Korean president Park Geun-hye.
It is also worth mentioning, out of the three, only the event for which Jay Y. Lee has been sentenced was acknowledged by Samsung. The 4th Z-rated impact concerns Samsung’s chairman conviction in 2019 for sabotaging labour union activities, among other union-related violations, and allegations in 2021 of poor labor conditions and human rights violation such as the involvement of child labor and force labour of Uyghurs through its supply chain. This impact contributes negatively to the SDG 8: Decent work and economic growth.
Last but certainly not least, Samsung’s 5th Z-rated impact rated Z is about worker’s health and safety (SDG 3: Good health and well-being). The group was fined twice in 2019 for violating the Occupational Safety and Health Act. Note that apart from the negative impact involving alleged cheating on benchmarks tests, Samsung put several mitigation measures in place for each of its negative impacts rated Z.
Relatively more lightweighted than its opponent, we found only 3 Z-rated negative impacts out of 12 for the Chinese powerhouse. The 1st Z-rated negative impact concerns SDG 15: Life on land, because of the impact of the group’s activities on ecosystems and biodiversity, namely the provision and installation of telecommunications equipment and network infrastructure, for which no mitigation measures have been reported on the matter.
The 2nd Z-rated impact concerns Huawei’s contribution to inequalities through discriminatory business practices based on age, the group having fired middle-aged employees. For this negative impact linked to SDG 10: Reduced inequalities, Huawei was convicted in 2020 by a Spanish labour court. Regarding this SDG, it is noteworthy that Huawei contributes to the under-representation of women, potential gender pay gap and lack of C-level women, issues which are common to the tech industry. Furthermore, note that as part of its mitigation measures, the group offers mentorship for new female employees in the UK.
The 3rd Z-rated impact, linked to SDG 16: Peace, justice and strong institutions, concerns Huawei’s history of misleading the public regarding some of its smartphone capacities (2016, 2018 and 2019) which the group acknowledged on social media. Apart from these three, Huawei has several major ongoing controversies such as its alleged involvement in developing surveillance products in China capable of identifying a person’s ethnicity—thereby activating a Uyghur alarm as reported by the Washington Post, and its alleged work on facial recognition technology with Myanmar and the United Arab Emirates authorities to intrude on people’s private lives.
Samsung Electronics 86/200 Ex-Æquo Huawei 86/200 Ex-Æquo
Both groups have an average score of 86 out of 200 points and continue to be on par with each other even in the details of the Governance score. The only difference relates to the score of their indicators, where Huawei scores slightly higher because its annual and sustainability report include what we consider impact indicators. However there’s no evidence that these indicators are used to improve internal processes or actively engage employees. Finally, both Huawei and Samsung have a good score regarding the analysis of their value chain in order to identify opportunities to increase their positive impacts and reduce their negative ones.
Samsung wins 🎉
Interestingly, our two opponents have been natural competitors for years. However, since its products have been banned in several countries such as the U.S., Australia and Japan due to concerns over security risks, Huawei, as a global smartphone maker, dropped globally from #2 to #7 in 2020. It has since begun shifting its main business line from smartphones to smart automobile components and software. The fact that Huawei has two of its negative impacts unmitigated and that it generates no significant positive impact, is no sign that the shift will bring a new prospect to the group, no matter the unveiled importance of double materiality and the growing demand for environmental and social considerations. So, with an impak Score of 144 out of 1000, Samsung is the winner of this battle. What may seem as a sad win is in fact quite interesting to analyze.
The South Korean powerhouse generates two significant positive impacts, but its score is weighted down by its many fines and Jay Y. Lee’s jail sentence. However, each of its 12 material negative impacts have numerous associated mitigation activities. One can believe that if some Zs are lifted and no others appear in the following years, it would help better reflect the group’s efforts in taking into account social and environmental issues. To be continued.
Specificity of the sector
What is especially relevant in the impact methodology is the importance given to the supply chain, whose impacts are considered as part of an organization’s impact as a whole. This is the main challenge of the electronics sector as it has been for years. To this day, groups like Samsung and Huawei can’t seem to be able to guarantee that there is no child labor involved in their supply chain or to ensure a minimum level of working conditions across suppliers. With the attention that double materiality and social and environmental considerations are getting, this sector, central to our everyday lives, will have to do a deep introspection of their practices to still prove themselves attractive to investors and customers. In the face of a rapidly deteriorating environment and urgent need for more social justice, there will soon be a need for new ways of doing things.
The methodology follows the IMP classification: A (Acts to avoid Harm), B (Benefits stakeholders), C (Contributes to solutions), and Z (Does or may cause harm). Note that according to our methodology, in the case of a Z, a certain penalty is assigned based on the following 3 factors: the type of Z (does cause harm or may cause harm), the repetition of the Z over time and, only in the case of a Z that ”does cause harm”, whether measures have been taken to mitigate this negative impact.
It is important to mention that companies may have some potential positive impacts that were not considered because of the limited information available or because they represent less than 0.01% of their activities. As positive impacts are based on their relationship to the Sustainable Development Goals (SDGs), they can overlap. The percentages of activities related to these impacts can therefore be non-cumulative.
The sub-score related to governance is based on several criteria analysing the integration of impact mechanisms within the company. Thus, the role of the various beneficiaries in decision-making, the analysis of its impacts within the value chain and the assignment of a team dedicated to the impact mission are all important criteria for this section.
Given the significant growth in transparency and sustainability among investors, one or two years can make a significant difference to impak Scores.
*VEGA Investment Managers is in no way responsible for the information contained in this article. The analysis of VEGA IM does not constitute investment advice or recommendation.
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