A Perspective From Investors: Opportunities for exchanges & regulators to promote sustainable capital markets
Markets are driven by information. If the information available is short term and incomplete, then these characteristics will define the world’s financial markets.
Exchanges and securities regulators play a central role in defining disclosure requirements for companies through listing requirements and the guidance they provide on these rules. As such, exchanges and regulators are well positioned to promote transparency, and ultimately performance, on environmental, social, and corporate governance (ESG) issues. Corporate disclosure of material ESG issues is an essential part of creating a stable financial system that advances sustainable economic growth.
While there has been progress, there is still significant headway to be made to improve the state of ESG information provided to investors by companies for investment decision-making purposes. In order to direct investment towards the creation of more sustainable economies, companies will need to enhance reporting – focusing on long-term value generation, addressing material ESG issues as well as financial information.
As such, exchanges and regulators are asked to consider taking the following actions to promote transparency in their markets:
- Issuing guidance for companies on ESG disclosure and introducing incentives aimed at encouraging voluntary reporting on ESG issues
- Highlighting ESG issues in existing definitions of what constitutes material information for the purposes of corporate reporting.
- Encouraging corporate boards to disclose the approach to determining the company’s material ESG issues and time horizon for this assessment.
- Developing systems to obtain investor feedback on the quality of the existing disclosures, in order to better inform future work plans.
- Offering trainings, workshops and other events to facilitate education, communication and engagement on sustainability issues; targeted participants could include, companies, investors, exchanges, regulators and other issue experts and priority stakeholders.
- Encouraging the creation of financial products that promote ESG issues, such as sustainability indices.
- Participating in SSE activities, and becoming a SSE Partner Exchange.
As investors need comparable and timely information, if voluntary mechanisms are not leading to all companies reporting on material ESG information, in a timeline that aligns with the release financial reports, it is requested that exchanges and regulators work to:
- Establish a mandatory reporting requirement for the disclosure of material ESG information; this can be introduced on a “comply or explain” basis, which can help establish a clear set of disclosure expectations, while providing companies flexibility.
While these requests may be complex in their implementation, they represent important next steps toward creating more sustainable capital markets.
To download the Investor’s Perspective, click here.
Investor Engagements with Stock Exchanges: Organizing complimentary work streams, both PRI and UNEP-FI encourage their members to engage with stock exchanges and their regulators.
- PRI’s SSE Investor Working Group: Representing over USD $6.8 trillion, PRI has an Investor Working Group, led by Aviva Investors, that is actively engaging with stock exchanges and their regulators. Any investors who are signatories to the PRI and interested in learning more about this opportunity are invited to email firstname.lastname@example.org .
- UNEP-FI Stock Exchange Engagement: UNEP FI invites its members to contribute to the mission of the SSE through various projects. To learn more please contact Elodie Feller at email@example.com