ESG and Corporate Social Responsibility. So far exchanges comprising 44% of world stock market capitalisation have voluntary or mandatory ESG reporting requirements. The Johannesburg stock exchange and Bovespa of Brazil are leaders at embedding reporting standards, but the biggest game changer would be if the US and European exchanges mandated disclosure. While codes of conduct are emerging in both regions it is just a matter of time before this becomes legally binding, driven by investor demands and government requirements.
A three-pronged approach is underway for Environmental, Social, and Governance(ESG) disclosure – exchanges are pushing ESG initiatives, accounting standards are factoring in sustainability, and governments are promoting a ‘report or explain’ mantra. Exchanges mandating disclosure offer the speediest mechanism to full ESG integration, but only if the requirements are meaningful and not simply lip service. The integration of Environmental, Social and Governance (ESG) indicators into financial analysis is finally gaining some momentum, and is expected to increase. Investors have asked for it for years and companies have responded. But confusion over investor requirements and the scope of ESG has resulted in only partial integration into core investment analysis. Three drivers are now shaping the future – exchange requirements, accounting standards and government support.
At Rio +20 a coalition of investors pressed governments to commit to a global convention on sustainability reporting. Instead, governments agreed, in paragraph 47 of ‘the future we want’ conclusion document, that “we acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building”. After the summit the governments of Brazil, Denmark, France and South Africa formed "Friends of Paragraph 47" group to further the agenda. At Rio +20 a coalition of investors pressed governments to commit to a global convention on sustainability reporting. Instead, governments agreed, in paragraph 47 of ‘the future we want’ conclusion document, that “we acknowledge the importance of corporate sustainability reporting and encourage companies, where appropriate, especially publicly listed and large companies, to consider integrating sustainability information into their reporting cycle. We encourage industry, interested governments as well as relevant stakeholders with the support of the UN system, as appropriate, to develop models for best practice and facilitate action for the integration of sustainability reporting, taking into account the experiences of already existing frameworks, and paying particular attention to the needs of developing countries, including for capacity building”. After the summit the governments of Brazil, Denmark, France and South Africa formed "Friends of Paragraph 47" group to further the agenda.
Stock Exchange Initiatives | Description |
Australia | A report or explain initiative whereby the ASX listing rule requires entities to disclose the extent to which the company has |
followed the recommendations, which includes environmental and sustainability issues set by the ASX Corporate Governance | |
Council. | |
Bursa Malaysia | CSR disclosure is incorporated into Listing Requirements and a business sustainability program to encourage listed |
companies to integrate sustainability into business strategy | |
Egypt | EGX with S&P has developed ESG index of 30 best performing stocks in Egyptian market as measured by ESG parameters |
India | A circular by the regulatory body, SEBI in Nov 2011 mandated top top 100 (in terms of mkt cap) companies on BSE and NSE |
to submit business responsibility reports effective from the FY ending on or after Dec 31, 2012. The BR report guidelines cover | |
all the key aspects of ESG disclosure. | |
Istanbul | Istanbul Stock Exchange Sustainability Index (ISESI) launched in August 2010 reviews the sustainability management of ISE |
listed companies | |
Johannesburg | Over 450 companies listed on JSE are required to produce an integrated report (King code III) in place of annual and |
sustainability reports, or explain a failure to do so. | |
Korean Power Exchange | KPX developed Korean SRI Index based on policy, performance and reporting on ESG issues. Before being listed on the |
exchange, a company must demonstrate that it has addressed each of these issues | |
NASDAQ | Post Rio +20, NASDAQ has recommended listed companies to report on environmental issues or explain if they do not. This is |
also applicable to Copenhagen Exchange which is owned by NASDAQ OMX Group | |
Pakistan | Corporate Social Responsibility General Order: This requires all public companies to provide descriptive as well as monetary |
disclosures of CSR activities undertaken during each financial year. | |
Sao Paulo -Bovespa | Recommends listed companies to provide information on whether they publish sustainability report or explain why if they do not. |
Shanghai | Encourage listed companies to report environment information and prepare social responsibility reports. |
Shenzhen | Encourage listed companies to report environment information and prepare social responsibility reports. |
Singapore | Guideline to Sustainability Reporting for Listed Companies, 2011 |
Source: HSBC, Global Reporting Initiative, SEC, Bloomberg, Social Science Research Society |
Government Initiatives | Description |
China | Guidelines to the State-owned Enterprises directly under the Central Government on Fulfilling Corporate Social Responsibilities, 2008 |
and the Environmental Information Disclosure Act, 2007 | |
Denmark | Action Plan for Corporate Social Responsibility makes mandatory for large businesses to report on CSR in the management’s review of |
the annual report. | |
European Union | EC presented EU strategy on CSR, which among other policy agenda calls for improvement of company disclosure of social and |
environmental information. EC invites all European enterprises to commit by 2014 to one of the standard principles/ guidelines while | |
developing their CSR strategy | |
Finland | Government Resolution on State Ownership Policy: This resolution required listed/ non-listed state-owned companies to report their |
sustainability performance | |
France | Grenelle II Act made it mandatory for all listed companies and companies with an annual turnover of over EUR100m and an average of |
500 employees to disclose social and environmental information. | |
Germany | National Strategy for Corporate Social Responsibility - ‘Action Plan for CSR’, 2010 aims at encouraging CSR reporting in enterprises and |
public bodies as well as small and medium enterprises | |
India | National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business, 2011 introduced by Ministry of |
Corporate Affairs | |
Malaysia | A government law passed requires all listed companies to publish CSR information |
Norway | A working group on CSR proposed amendment bill requiring large-listed companies to provide information on their guidelines for |
tracking their social responsibility. | |
Spain | Spanish Sustainable Economy Law, 2011: encourages limited companies to disclose their CSR policies and achievements |
Sweden | Guidelines for External Reporting by State-owned Companies, 2007: makes mandatory for state-owned companies to present |
sustainability report based on GRI G3 guidelines | |
UK | Regulations to make all businesses listed on LSE to report their levels of greenhouse gas emissions will be introduced from April 2013. |
They will be reviewed in 2015, before ministers decide whether to extend the approach to all large companies from 2016. | |
US | The U.S. SEC in Jan 2010 issued interpretive guidance which clarifies existing SEC disclosure requirement with respect to what publicly- |
traded companies need to disclose to investors in terms of 1) climate-related ‘material’ effects on business operations; 2) legal, | |
technological, political and scientific developments regarding climate change may create new opportunities or risks for companies, and | |
3) physical impacts of Climate Change. | |
Source: Global Reporting Initiative, SEC, Bloomberg, Social Science Research Society |
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