Stock Exchanges Adopt Sustainability Reporting

By Sunny Lewis

GENEVA, Switzerland, December 13, 2016 (Maximpact.com News) – As many as 21 more of the world’s stock exchanges could introduce sustainability reporting standards before the end of the year, bringing the total number to 38, says an official with the United Nations Conference on Trade and Development .

Seventeen stock exchanges already recommend that their listed companies report on environmental, social, and governance, known as ESG, issues.

And James Zhan, director of the Division on Investment and Enterprise at UNCTAD, which co-organizes the UN’s Sustainable Stock Exchanges (SSE) initiative, said that 23 stock exchanges have committed to introduce new standards on sustainability reporting in 2016.

Just two have implemented so far, but more are expected to introduce new standards before the end of the year or early in 2017, he said.

The upsurge in sustainability reporting standards follows the launch of the SSE Model Guidance on Reporting ESG Information to Investors.

“Twenty-one stock exchanges have confirmed to us they will introduce new guidelines either this year or within the first quarter of next year, and we know that many of them are close because they have posted draft guidelines on their websites for comment and discussion,” Zhan said.

“Sustainability reporting has come of age,” he said, adding that the UN and nongovernmental organizations are no longer the only ones to advocate sustainability reporting and that “the markets themselves are demanding it.“

In a newly published biennial report “2016 Report on Progress” on the progress made by Sustainable Stock Exchanges, SSE, the authors examined the environmental, social, and governance practices of 82 stock exchanges and found that exchanges are increasingly taking actions that contribute to the creation of more sustainable capital markets.

The report was prepared for the fifth SSE Global Dialogue held in September in Singapore. Representatives from 16 countries, including stock exchange chief executives, institutional investors and companies, senior government policymakers and United Nations representatives gathered to discuss the theme, “A New Global Agenda.“

One development in the new agenda is the number of exchanges now partnering with the SSE initiative. Fifty-eight stock exchanges, representing over 70 percent of listed equity markets, have made public commitments to advancing sustainability in their markets and are now official SSE Partner Exchanges.

Market transparency is gaining in acceptability too. Twelve exchanges currently incorporate ESG reporting into their listing rules and 15 provide formal guidance to stock issuers.

The progress of SSE’s campaign to encourage exchanges to issue guidance signals that the industry is ready to take the lead when presented with practical opportunities to develop more sustainable markets.

Another significant development is the growth of green finance. Green bond listings grew considerably and there is increasing interest among equity investors in issues like stranded assets and carbon risk.

The Luxembourg Stock Exchange now lists 110 green bonds and represents half of all listed green bonds globally.

Today 11 stock exchanges offer green bond listings, demonstrating that exchanges are already supporting the transition to a green economy and there is room for further growth.

ESG indices remain the most popular sustainability instrument among exchanges, with 38 of 82 exchanges providing them.

Upon joining the ESG guidance campaign in September 2015, Oscar Onyema, CEO of the Nigerian Stock Exchange, said, “The Nigerian Stock Exchange is using its unique platform to advocate for the adoption of global corporate governance standards and sustainable business practices. We are committed to developing principle-based sustainability reporting guidelines and a roadmap that will inspire sustainability imperatives in the Nigerian capital market.“

Looking at the policy landscape, many governments, too, are encouraging corporate disclosure of ESG factors, with 30 of the largest 50 country economies having at least one regulation on disclosure of ESG factors in place.

Government involvement on the investment side is less developed, with eight of the 50 countries implementing an investor stewardship code that addresses ESG factors.

Despite many reasons to be optimistic, the SSE’s data show that more action is needed if stock exchanges are going to play an important role in promoting the reorientation of financial markets to support the Sustainable Development Goals.

By reporting on sustainability issues, companies tend to act more sustainably too, Zhan said. They may have an incentive to do so, since analysts increasingly see a positive correlation between sustainable performance and strong financial performance too.

Zhan said the SSE initiative had helped spread corporate sustainability reporting, by distributing model guidelines for use by the stock exchanges themselves and their listed members.

The SSE initiative works to “advance sustainability” in the markets. It is organized by UNCTAD, the United Nations Global Compact, the United Nations Environment Programme Finance Initiative (UNEP-FI) and the Principles for Responsible Investment.

The private sector is seen as critical to achievement of the UN’s Sustainable Development Goals , and the SSE initiative is viewed as an important channel to get the private sector more involved in accomplishing these goals.

Launched by UN Secretary-General Ban Ki-moon in 2009, the SSE initiative now includes 58 stock exchanges, representing more than 70 percent of listed equity markets, and some 30,000 companies with a market capitalization of over US$55 trillion.

The SSE initiative was built on the demand from exchanges for a place to come together with investors, companies and policymakers to share good practices and challenges in a multi-stakeholder environment.

Since 2012 when the first five stock exchanges – BM&FBOVESPA in São Paulo, Brazil; Borsa Istanbul; Egyptian Exchange (EGX); Johannesburg Stock Exchange (JSE); and Nasdaq – made a public commitment to advancing sustainability in their market, the initiative has grown into a global partnership platform including most of the world’s exchanges.

Through the SSE, exchanges have access to consensus and capacity building activities, guidance, research and other support to assist in their efforts to contribute to sustainable development.

“Market expectations are shifting quickly and we see more and more stock exchanges viewing sustainability reporting as necessary and inevitable,” said Anthony Miller, UNCTAD’s SSE initiative coordinator. “Those expectations create their own momentum.”

The report concludes with recommendations for exchanges that range from introducing ESG reporting guidance to promoting gender-diverse boards to listing green bonds.

By putting the recommendations into action, exchanges can take leadership roles in creating more stable capital markets and a sustainable society.

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Featured image: Nasdaq displays the SSE logo in Times Square, New York City, March 2016 (Photo courtesy UNCTAD) Posted for media use

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