Stock Exchanges and Sustainability
Stock exchanges play a unique role in shaping more sustainable capital markets. Stock exchanges are critical levers for improving the depth, consistency and comparability of corporate disclosure on sustainability performance, including climate change risks. Leading exchanges around the world have implemented robust corporate education programs, sustainability-themed indexes and set minimal standards for sustainability disclosure as a prerequisite for companies to list on those exchanges.
The list of governments and stock exchanges around the world requiring or encouraging corporate sustainability disclosure continues to grow—at last count there were 180 laws and regulatory standards in 45 countries calling for some aspect of corporate sustainability reporting. Additionally, institutional investors have increased their focus on the critical role of stock exchanges in creating sustainable capital markets, including supporting mandatory requirements for stock exchanges to promote sustainability disclosure that is consistent and comparable across markets.
To bring attention to these issues, the United Nations formed the Sustainable Stock Exchanges Initiative (SSE Initiative). The SSE Initiative brings together stock exchanges, regulators, investors and other key stakeholders to promote improved disclosure on environmental, social and governance (ESG) issues, and is co-organized by the Principles for Responsible Investment (PRI), the United Nations Conference on Trade and Development (UNCTAD), the United Nations Environment Programme Finance Initiative (UNEP-FI) and the United Nations Global Compact (UNGC).
A call to action by Aviva Investors in 2010 encouraged investors to engage with stock exchanges on sustainability reporting matters. Subsequently, a Working Group was launched within the PRI to focus on moving this work forward. Ceres was a member of that Working Group, and committed to engaging with its INCR members to elicit progress.
Investor Initiative for Sustainable Exchanges
In late 2010, INCR formed a Working Group of investors that met monthly to discuss stock exchange progress on sustainability reporting guidance and rules for listed companies. That Working Group later became the Investor Initiative for Sustainable Exchanges (IISE). The focus of the IISE was to support INCR members in engaging with US and other exchanges on sustainability reporting standards, and to continue to gather feedback from the investor community on its views on mandatory reporting of sustainability information.
With input from global investors, Ceres developed the Investor Listing Standards Proposal: Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting. In partnership with Ceres, the World Federation of Exchanges (WFE) hosted a formal comment period for exchanges to provide feedback on the Proposal following its issuance. The confidential responses of the WFE members were then used to develop a strategy for moving forward.
At that same time, in March 2014, the WFE announced the formation of a new permanent committee, the WFE Sustainability Working Group. Representing all types of exchanges from every major region of the world, the committee comprises over 20 exchanges and serves as a forum for building consensus on the purpose, practicality, and materiality of Environmental, Social and Governance (ESG) data.
After an 18-month process, on November 4th, 2015, the WFE ‘s Exchange Guidance & Recommendations document was launched at the UN SSE Regional Dialogue in Helsinki. The process involved developing 33 key performance indicators on ESG topics along with 46 recommendations for both exchanges and for issuers on enhancing existing sustainability programs and ESG reporting best practice.
Please see here for more information on how investors are increasingly collaborating on stock exchange engagements.
'By working together, stock exchanges can use their listing requirements and market influence to ensure investors have the consistent, comparable and high-quality material environmental, social and governance information they need to make informed, long-term decisions.’
Dr. Christine Chow, Associate Director, Hermes Investment Management, London