Emerging markets case study
ESG in action



Key Points

Engaged with Yum China’s management team and explored their plans to reduce greenhouse gases, water usage, and electricity usage within its operations.
Investigated the social externalities of Chinese afterschool tutoring companies when considering the sustainability of the industry.
Discussed acquisition plans with the Chief Executive Officer and Chief Financial Officer of Burger King Brasil and expressed why we, as shareholders, planned to vote against the deal.


As environmental factors become an increasingly important issue for businesses, consumers, and the government, we incorporate them into our analysis of potential investments. Yum China is a leading quick-service restaurant operator in China. The company’s strong focus on sustainability has proven to not only be good for the environment, but also good for business.
We have engaged with the company’s management team and explored their plans to reduce greenhouse gases (GHG), water usage, and electricity usage within Yum China’s operations. Over the last three years, overall Scope 2 GHG emissions have been reduced by 15%, hitting the company’s 2025 GHG target five years early. This was done through various initiatives such as reducing plastic packaging, removing plastic straws, and moving to wooden cutlery versus plastic. The company has saved over 8,000 tonnes of paper and 1,200 tonnes of plastic annually over the last three years. Any plastic packaging that is used is 100% recyclable.
Yum China is also targeting reduction in water usage per restaurant and has seen 20% reductions over the last three years through initiatives such as new dishwashers that save 0.9 tonnes of water per day and using thawing cabinets that use air versus water.
The company has also reduced the average electricity consumption per restaurant by 15% with more energy-efficient equipment and lighting as well as intelligent stores that are using artificial intelligence to automatically switch off equipment and lighting. Within the supply chain, smarter route planning and more new energy vehicles will also help to reduce emissions and make the operations more sustainable.
One strength of Yum China has been its operating efficiency and ability to manage costs. Through the reduction of water usage, electricity usage, and GHG, Yum China is also able to save money and drive greater operating efficiency.
Finally, the company has set out an ambitious target to have zero value chain GHG emissions by 2050."
Finally, the company has set out an ambitious target to have zero value chain GHG emissions by 2050. The company has regular sustainability committee meetings to find new ways to reduce its environmental footprint. Yum China’s reduction in its environmental impact can result in substantial cost savings and help it to continue to deliver value to consumers.


Social factors are important to consider when thinking about the sustainability of a business. Chinese afterschool tutoring (AST) companies provide tutoring services to help students prepare for the various levels of examination within the Chinese education system, the most important being the university entrance exam (known as the Gaokao).
For a long time, AST companies looked to be fantastic investments generating strong cash flows, high returns on capital, and a long runway for growth. However, upon closer examination and viewed through our ESG framework, we could not get comfortable with the social impact that these businesses had on Chinese society.
AST companies further fed the hyper-competitive environment in China and resulted in multiple negative social externalities. Parents felt squeezed from the increasing cost burden of their children’s education, students felt extreme time and psychological pressures, the government saw an exodus of high-quality teachers from the public school system to these private institutions, and teachers would see exhausted students fall asleep in class. To us, it seemed clear that the only beneficiaries of these businesses were the investors. The negative social impact of AST was probably best encapsulated by a predatory advertisement we saw on Chinese social media that translated to: “if we don’t train your kids, we will train your kids’ competitors.”
The negative social impact of AST was probably best encapsulated by a predatory advertisement we saw on Chinese social media that translated to: “if we don’t train your kids, we will train your kids’ competitors.'"
Eventually we saw new government regulation banning for-profit afterschool tutoring, which effectively erased these businesses from existence at substantial permanent loss of capital for investors. Our focus on the social risks within our potential investments allowed us to completely avoid investing in the sector. A key takeaway from this experience is that businesses should add value to all stakeholders over the long term and profitability should not come at the expense of one or more groups of stakeholders.


In 2021, we engaged with senior management at Burger King Brasil, the master franchisee for the Burger King and Popeyes brands in Brazil. The team has had an impressive run since 2011, reaching over 930 stores by year-end 2021 (second only to McDonald’s in Brazil).
More recently, the company navigated through COVID-19 and inflationary pressures in 2020 to 2021, increased operational efficiency, and created and scaled new digital channels and a loyalty program with millions of users.
In July 2021, Burger King Brasil announced the acquisition of the Domino’s Pizza master franchisee in Brazil. Management planned to pay for the acquisition by issuing shares, assuming it was first approved by shareholders. After studying the target and the deal terms, we engaged with the CEO and CFO on multiple occasions and explained why we planned to vote against the deal. Our main concerns were (1) the disparity of the valuation implicit in Burger King Brasil’s shares versus the valuation they were paying for Domino’s, (2) the large dilution via share issuance at a time when we thought our stock price was severely undervalued, and (3) the deal would distract senior management from their main priorities, which we felt were increasing sales per store and improving delivery economics.
Thankfully, management decided to cancel the proposed deal even before publishing the shareholder meeting documents. This experience also brought us closer to management and we remain confident on management’s ability to create value over the long term.
Sources: Yum China’s annual ESG Report, company filings, Burgundy research

About the Author

Anne Mette de Place Filippini
Anne Mette de Place Filippini
senior Vice President,
chief investment officer,
Portfolio Manager
A passionate student of business, Anne Mette began her career in strategy consulting in England in 1992. Over almost a decade, she earned valuable business experience from an inside vantage point by working with senior management on business strategy across various industries. Anne Mette moved to Canada in 1994 and then in 2000 left consulting to join the investment management industry to practice value investing the Warren Buffett way. In 2008, she joined Burgundy to launch an emerging markets equity portfolio and build an investment team to support it.
Anne Mette believes excellent educational institutions are the cornerstone of Toronto’s long-term success and enjoys volunteering her time in this area. In 2006, she received the Arbor Award from the University of Toronto for outstanding volunteer service.
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