April 02, 2014
Stock Exchanges to Study Sustainability Reporting Standards
by Robert Kropp
The World Federation of Exchanges forms a sustainability working group to study environmental,
social, and corporate governance (ESG) disclosure, and a coalition led by Ceres announces an
initiative to engage global stock exchanges on the issue.
A report issued late last year by EIRIS documented some reasons why stock
exchanges have been reluctant to mandate corporate sustainability reporting on their own.
According to EIRIS, companies can move “to an alternative exchange if they found listing
requirements on one exchange to be too onerous.” The US-based NASDAQ, a member of the Sustainable
Stock Exchanges initiative, told EIRIS, “Our market is more competitive...we’re a little more
reticent to jump out in front of this by ourselves.”
Yet, according to the Investor Network on
Climate Risk (INCR), stock exchanges are in a position "to be critical levers for improving the
depth, consistency and comparability of corporate disclosure on climate change and sustainability
A step in the direction of mandatory environmental, social, and corporate
governance (ESG) disclosure was announced last week, when the World Federation of
Exchanges (WFE) stated it has formed a working group to study the promotion of sustainable business
According to the WFE, the working group has “a mandate to build consensus on
the purpose, practicality, and materiality of Environmental, Social, and Governance (ESG) data.”
“The overwhelming interest among our members for ESG issues is a good indication for
constructive future collaboration in this group, which will transcend competitors and regions in
order to tackle key issues and promote best practices." said Ravi Narain, Chairman of the
organization's Working Committee.
One day after the WFE announcement, Ceres announced an
initiative to engage with global stock exchanges on uniform reporting standards for sustainability
Ceres' recommendations to the WFE are included in a new report, which
provides “a three-part recommendation for a listing rule on sustainability disclosure.”
“Every company shall discuss its process for determining the ESG factors material to its
business, as well as the outcome of this assessment, within its annual financial filings,” the
report states. The report further recommends that companies adopt a comply-or-explain approach to
their disclosures relating to ten key ESG categories.
Also, “Every company shall provide a
hyperlink in its annual financial filings to an ESG Disclosure Index, utilizing the Global
Reporting Initiative’s Content Index OR its functional Equivalent.”
“Investors hope that
this proposal encourages exchanges to explore the potential for improvements in global ESG
disclosure,” the report states, “while still considering the unique rules and sustainability
disclosure history of each exchange.”
“For years, investors have been decrying the current
state of corporate sustainability disclosure as woefully insufficient and not comparable,” added
Mindy Lubber, president of Ceres and director of INCR. “The time has come for a broadly-adopted
sustainability disclosure standard—one that moves beyond voluntary approaches. We look forward to
the feedback from exchanges, and their recommendations for advancing robust and useful
sustainability reporting worldwide."
Also, “Institutional investors are under heightened
pressure from clients and beneficiaries to be responsible stewards of client assets, which means
not only financial responsibility but also ethical responsibility for the impact of those assets on
communities, workers, and the environment,” Ceres stated.