Investors Want Global Stock Exchanges to Require More Disclosure

Bloomberg BNA — More than 100 institutional investors have developed recommendations for integrating disclosure on environmental and social issues into listing rules for stock exchanges worldwide.

The proposal, released March 26 by sustainability advocacy group Ceres, is part of an effort to develop a common standard for sustainability reporting by companies listed on stock exchanges in the U.S. and other countries.

Ceres worked with asset manager BlackRock, the New York State Comptroller's office and other major institutional investors to develop the proposal over the last few years.

Investors are increasingly considering sustainability issues in their decision making, but more consistent and comparable sustainability data are needed, Tracey Rembert, senior manager for investor engagement at Ceres, said.

Stock exchanges can help improve corporate sustainability reporting by providing “clear expectations for what companies should report,” Rembert told Bloomberg BNA.

The listing proposal recommends three questions that stock exchanges should ask to help investors better understand companies' sustainability-related risks and impacts.

First, the proposal asks listed companies to explain their processes for determining which sustainability issues are material, or relevant, to report. The proposal also asks companies to report—or explain why they don't report—on 10 basic sustainability issues, including climate change and supply chains.

Finally, the proposal says the exchanges should ask where companies' sustainability disclosures can be found so that investors can easily access such information.

Companies could use existing sustainability reporting frameworks, such as the Global Reporting Initiative guidelines, to implement these recommendations, Ceres said.

Feeds into Global Debate

Some stock exchanges, including those in Johannesburg and Brazil, have already adopted sustainability listing requirements. But other stock exchanges are worried that implementing more rigorous sustainability regulations could cause listed companies to “jump ship” and go to another exchange, Rembert said.

To make sure that doesn't happen, Ceres said the proposal will be submitted to the World Federation of Exchanges (WFE) for consideration.

The WFE, a trade association of 62 international exchanges, formed a sustainability working group March 25 to broadly discuss the purpose, practicality and materiality of sustainability data to stock exchanges.

The 11 exchanges that are members of this working group have until June 23 to provide feedback on the Ceres proposal, though the working group also is considering other options for a potential sustainability listing standard.

The WFE group could eventually come up with its own minimum recommendation on sustainability reporting that individual exchanges could “take back and localize as they see fit,” Evan Harvey, who directs NASDAQ OMX's sustainability efforts, said. NASDAQ OMX is a member of the sustainability working group.

“I think it's going to be a pretty robust discussion around what is tolerable on a global stage,” Harvey told Bloomberg BNA.

For some exchanges, the minimum standard could come in the form of a sustainability listing rule, while others may prefer to issue guidance on sustainability reporting by listed companies depending on whether the exchanges are in emerging or developed economies, whether they tend to have large or small companies listed on them or other factors, Harvey said.

Upcoming Vote

The WFE is looking to prepare a recommendation that could be voted on at its annual meeting in October.

If a minimum sustainability standard is recommended at the October meeting, then exchanges would likely issue guidance over the next two years to get companies that are new to sustainability reporting up to speed, Rembert said.

Investors are hoping for a mandatory sustainability listing standard for stock exchanges by 2016, which she said could be “game-changing” for the adoption of sustainability reporting.

“At this point, investors have done their work,” in terms of reaching a consensus on what sustainability information to ask of listed companies, Rembert said. “It will be up to the exchanges now” to agree on a global approach, she said.

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