Corporate Knight’s report on ranking the world’s stock exchanges based on sustainability disclosure

July 20, 2016

Today marks the release of the fifth installment of the Corporate Knight’s report ranking the world’s stock exchanges based on sustainability disclosure. In line with the release, Steve Waygood, Chair of the PRI-organized Sustainable Stock Exchanges (SSE) Initiative Investor Working Group, which represents USD $7 trillion AUM, is calling on global exchanges and IOSCO to take a stronger role in improving ESG data disclosure.

The research ranks 45 exchanges, recognizing those who performed well or improved past performance, and calling for further action from others that performed poorly.The rankings are based on the disclosure of seven sustainability indicators by issuers listed on the exchange. These metrics are meant to serve as a proxy for disclosure do not cover all material sustainability metrics; therefore, there is still a role for even the top performing exchanges to play in further improving sustainability disclosure in their markets.  

The report also shows that while disclosure rates have improved over the past five years, in part due to positive actions by exchanges, the overall global level of ESG disclosure is still far too low. For instance, when looking at the largest listed companies across the 45 exchanges included in the research, GHG emissions were disclosed by only 47% of issuers. This is why institutional investors with global portfolios need IOSCO to take leadership.

Key findings from the 2016 Corporate Knight’s report include: 

  • Mandatory disclosure is successful in improving corporate sustainability disclosure;
  • Overall, improvement in disclosure is slow, with the number of large companies that disclose water increasing only 26% between 2010 and 2014;
  • Disclosure on social metrics is weak.

“Disclosure and transparency are essential components of sustainability,” said Fiona Reynolds, Managing Director, Principles for Responsible Investment.  “In order to effect change, investors need to engage with all players across financial services, including stock exchanges.  This means understanding their businesses, understanding what they are doing but also expecting them to change with the times. More and more, exchanges worldwide are realsing that being sustainable means that they can attract more investors who will stay with them for the long-term.”

To coincide with the publication of the report, Steve Waygood is writing to the 45 exchanges and IOSCO board members, encouraging them to adopt mandatory reporting requirements for the disclosure of material ESG information which, according to the 2016 report, can be effective tools for improving the quality and consistency of investor-useful information. This includes comply-or-explain initiatives. At a minimum, it calls on exchanges that do not offer guidance to issuers on reporting ESG information to make a public commitment to the SSE’s Campaign to Close the Guidance Gap and produce their own guidance by the end of the year. Currently, 23 exchanges have made this pledge. The research also sets out a clear role for IOSCO at a global level, to develop globally consistent listing rules.

According to Steve Waygood, the most effective action investors and other market stakeholders can do to advance sustainability in their markets is to “step up to policy conversation, engage with international organizations and encourage those that control the global infrastructure for markets to take ESG issues more seriously.” Toby Heaps, CEO, Corporate Knights, added that international accounting standards bodies such as IASB have an opportunity to contribute to developing global sustainability standards, and investors, particularly from G20 countries should advocate for them to do so. To hear a more in-depth answer, as well as further insight into key actions exchanges, regulators, investors, companies and other stakeholders can take from the 2016 Corporate Knight’s report, stay tuned for the forthcoming PRI Podcast From Patchwork to Framework: The Case for a Global Approach to Reporting Material Sustainability Information, available to download on iTunes shortly.

To view the full 2016 Corporate Knight’s report click here.