Friday, November 27, 2009

Stock exchanges performing poorly on ESG issues

The world’s stock markets play an important role in fostering confidence and promoting good governance and disclosure. However, most exchanges scored below 50% in an EIRIS study based on environment, social and governance (ESG) factors.

“Good quality ESG disclosure is crucial for holistic investment decision-making, however is currently lacking across the market,” the European research house notes in a report issued this week.

The Toronto Stock Exchange scored 49% on the EIRIS scale, compared with 52% for the NASDAQ, 54% for London’s FTSE and 70% for Australia’s ASX, the top performer in the study.

On the plus side, stock exchanges have already started playing a role in promoting better ESG disclosure through IPO and listing requirements in some countries, EIRIS says, but much more needs to be done.

“While regulation and company law play an important role in establishing and improving standards, it is increasingly apparent that stock exchanges are well placed to play a key role in the responsible investment debate and in particular in improving ESG disclosure through a principles-based market mechanism.”

The report recommends that stock exchanges:
-- Incorporate ESG disclosure requirements into listing rules and corporate governance standards;
-- Implement disclosure requirements on a “comply or explain” basis;
-- Support the requirement for a resolution on a CSR or sustainability report;
-- Explore measures to encourage best practices amongst companies, e.g., through sustainable indexes.

The Sustainable Stock Exchanges conference this month, hosted by the UN Principles of Responsible Investment, among others, provides an “excellent opportunity to achieve meaningful and lasting improvements to ESG disclosure throughout the market,” EIRIS says.

Download the report.

No comments:

Post a Comment