Momentum is building for consistent rules on sustainability reporting across international stock exchanges
A campaign to create uniform sustainability reporting for companies listed on global stock exchanges has taken a step forwards with a proposal by the US-based environmental coalition Ceres via the World Federation of Exchanges.
Ceres, with input from more than 100 institutional investors – including BlackRock, the world’s biggest asset manager – has published a series of recommendations for integrating environmental, social and governance (ESG) disclosure requirements into listing rules.
The goal is both to promote ESG values and to make a more consistent international investment arena, so that companies are not left at a competitive disadvantage by having to disclose more than rivals trading in other jurisdictions.
Tracey Rembert, senior manager of investor engagement at Ceres, says publication of the report reflects how vital most investors now consider sustainability reporting to be. “They want more comparability and consistency and many more companies reporting [on sustainability] because at the moment there are numerous gaps even within sectors between those that are putting out information and those that aren’t.”
One key recommendation is not just disclosure of the main ESG issues that are most material to a specific business, but a detailed analysis. “The message was: don’t just tell us climate change, human rights and community impact, for instance, but a lot more information on how and why,” Rembert says.
Investors are under increasing pressure from beneficiaries and clients to incorporate sustainability issues into the investment process and often they are not able to because of a lack of data, Rembert says.
The extensive consultation that went into the report – titled Investor Listing Standards Proposal: Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting – also showed a desire for small and medium companies to be subject to the same level of disclosure as bigger ones.
The recommendations have now been formally submitted to WFE members, with consultation likely to run for several months.
Corli Le Roux, head of SRI Index and Sustainability at the Johannesburg Stock Exchange (JSE), welcomes the fact that this proposal has come from institutional investors.
“They are a critical part of the whole sustainability debate and can play a major role in pushing companies forwards.”
The JSE has yet to comment formally on the Ceres proposals but Le Roux says she is initially encouraged by its tone.
“Exchanges around the world need to be able to implement sustainability reporting approaches that are suitable to their own environments. A one-size-fits-all solution would not work. Overall, we expect evolutionary development on this issue globally in the coming years rather than a wholesale change.”
Le Roux says emerging markets tend to feel sustainability issues far closer to the grassroots level and therefore start incorporating them into their operations sooner. “We’ve shared a lot of knowledge and experience with Brazil and other exchanges,” she adds.
However, she emphasises that sustainability is a “very dynamic area” and will vary according to jurisdictions. It is vital that any regulations can be realistically complied with.
“A risk is that it becomes tick-box compliance, so the JSE goes to great lengths to ensure the whole process can be monitored properly.”
Le Roux also lauds the United Nations Sustainable Stock Exchanges (UNSSE) scheme, which explores how exchanges can work together with investors, regulators and companies to enhance corporate transparency, and ultimately performance, on ESG issues and encourage responsible long-term approaches to investment.
JSE is one of nine partner exchanges on UNSSE, the others being Bombay, Istanbul, Brazil, Egypt, Nigeria, Warsaw, NYSE Euronext and Nasdaq.