(Xiamen) – UNCTAD co-hosted the second global dialogue on Sustainable Stock Exchanges. The event took place against the backdrop of UNCTAD’s World Investment Forum and the China International Fair for Investment and Trade (CIFIT) which brought together 1500 leaders from various stakeholder groups including governments, businesses, international organizations, investment promotion agencies, civil society, and international investment experts and practitioners from across the world.
The dialogue, which was co-convened with the UN Global Compact and the Principles for Responsible Investment (PRI) and supported by the International Organisation for Securities Commissions (IOSCO), was a continuation of last year’s dialogue at UN Headquarters in New York where top executives explored how the world’s exchanges could work together with investors, regulators, and business to encourage responsible long-term approaches to investment. This year’s event focused on the relationship between all major exchanges and the regulatory frameworks in which they operate in light of environmental, social and governance (ESG) issues.
“ESG issues are critical for creating a world economy that is more stable, inclusive and sustainable“, said Supachai Panitchpakdi, Secretary-General of UNCTAD. “Stock exchanges and regulators have an important role to play: promoting standardized, transparent ESG disclosure, and empowering investors through corporate governance rules to make use of that information.”
A study commissioned by Aviva Investors on the sustainability practices of world’s top 30 exchanges*, launched at the event, shows that emerging market exchanges are, in many ways, leading the way in terms of implementing required sustainability disclosure and other measures to enhance corporate sustainability reporting of listed companies.
In recent years ESG disclosure rules were launched in Egypt, Brazil, China, India, Indonesia, Malaysia and South Africa, among others. In 2010, the Johannesburg Stock Exchange became the first exchange in the world to require listed companies to move towards integrated reporting as required in King Code on Corporate Governance III.
This flurry of activity in many emerging markets is a recognition of the need to internalize environmental and social considerations into financial markets in order to promote more sustainable development. A key aspect of this process is producing more and better ESG reporting.
James Gifford, Executive Director of the PRI, remarked: “Disclosing ESG performance data in a systematic way gives investors additional confidence that a company is effectively managing its risks and opportunities. The Sustainable Stock Exchanges initiative, which is led and supported by investors, points to a clear business case for global stock exchanges to play a role in promoting transparent and sustainable financial markets.”
The study commissioned for the event found that currently two thirds of exchanges do not provide sustainability reporting guidance for listing companies. It also found only 25 per cent would consider altering listing rules to oblige companies to assess how responsible and sustainable their business model is and just over 10 per cent would consider suggesting that companies put this to a vote.
In Xiamen, Aviva Investors also announced that a coalition of investors will be writing to CEOs of global listing authorities and stock exchanges to demand that sustainability reporting becomes embedded within listing rules and that listed companies put a forward looking sustainability strategy to vote at their AGM. The ‘call to action’ already has the support of investors representing combined assets under management of US$558 billion with plans to enlist more supporters over coming weeks.
Paul Abberley, CEO of Aviva Investors London, said:
“As long term investors we believe that embedding environmental, social and governance factors into a company’s strategy can enhance shareholder value. We also believe that stock exchanges can play a crucial role in helping to create more sustainable global capital markets and are sending a strong signal to the stock exchanges that, all things being equal, Aviva Investors would prefer to trade on stock exchanges that maintained this listing provision.”
*The main purpose of the proposed corporate responsibility reporting requirement – and the associated AGM vote – is to create the right kind of discussions within the boardrooms of listed companies around the world, and then between the company and its shareholders.. The proposal suggests the UN Global Compact as an appropriate framework for boards to consider, and that reporting be conducted on a “comply or explain” basis. The three key components to the mechanics of the AGM vote itself are: (i) the report would be published in its entirety or summarised in the Report and Accounts; (ii) the vote would be advisory; and, (iii) shareholders will be asked to approve the report.