Development Crossing

Corporate Social Responsibility (CSR) and Sustainability

Three Drivers Shaping the Future Integration of ESG Into Mainstream Reporting

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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