Ceres Pitching New Proposals for ESG Disclosure on Global Exchanges

Boston-based sustainable investing advocate Ceres has been pushing for stock exchanges to develop global standards on sustainability disclosure.

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Trading activity is displayed on electronic boards at the Nasdaq MarketSite in New York, U.S., on Friday, March 18, 2011. Nasdaq OMX Group Inc. is in talks with lenders about funding a possible bid for NYSE Euronext to counter Deutsche Boerse AG’s more than $9 billion offer for the exchange operator, according to people with knowledge of the matter. Photographer: Jin Lee/Bloomberg

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The sustainable investment community has long argued that so-called ESG factors — that is factors concerning the environment, social issues such as human rights, and corporate governance — are materially relevant to investors. The challenge, however, has been getting companies to disclose information around these issues in a way that is meaningful and standardized so that investors can act on it. Once ESG factors can be quantified, so the argument goes, the risks and opportunities will become much more apparent to the broader investment community.

Last month, in an effort to move the discussion forward, a group of investors working through Ceres,a Boston-based not-for-profit and sustainability advocate, published a set of recommendations on standard ESG disclosure for stock exchanges.

Entitled “Proposed Sustainability Disclosure Listing Standards for Global Stock Exchanges,” the report was put together by a 10-person committee including representatives from New York-based investment firm BlackRock, the trade union group AFL-CIO, Canada’s British Columbia Investment Management Corporation and Rockefeller & Co. It includes three major recommendations: that exchanges require listed companies to include “a materiality assessment in annual financial fillings where management will discuss its approach to determining the company’s material environmental social and governance issues”; that the financials include a link to a global reporting index, identifying where ESG information on the company can be found; and that listed companies disclose their approach to various ESG issues, including climate change, human rights, employee relations, government relations and environmental impact.

The Ceres effort is not the only initiative under way aimed at getting companies to release more data around ESG factors — in particular as they relate to climate change. For example, the Sustainable Stock Exchanges initiative, formed in 2009 and backed by the United Nations’ Principals for Responsible Investing, is an initiative that brings together stock exchanges from around the world to discuss this very issue.

What makes the Ceres initiative different, says Tracey Rembert, Senior Manager for Investor Engagement with Ceres who is spearheading the proposal, is that it offers concrete steps forward and initiatives focused on investors and what they want. “Investors have been frustrated by the lack of data,” she says. BlackRock, for example, became involved with the project because “they needed more consistent data.”

Exchanges are opening up to the idea of doing more to advance sustainability. In June, Nasdaq OMX Group joined the São Paulo, Johannesburg, Istanbul and Cairo stock exchanges in an effort to require listed companies to report on material information around ESG risks. The Hong Kong and Singapore stock exchanges are also making efforts. Ceres says in its report that they have had dialogues with Nasdaq OMX and other exchanges who urged the group to “develop clarity and consensus on a unified sustainability disclosure listing standard that could be adopted by all stock exchanges.” As Rembert explains, however, the exchanges are reluctant to move forward on their own. “They only want to do something if they all do it, because they don’t want to be at competitive disadvantage.” Ceres’ goal, therefore, is to reach a censuses among investors about what disclosure they require, and how they require it to be presented, to encourage the exchanges to act.

Ceres is seeking comments on its proposals through May 1. It will then engage in a series of meetings and discussions with institutional investors and other stakeholders with the aim of having a comprehensive set of proposals for the World Federation of Exchanges’ general assembly and annual meeting, which will be hosted by Mexico’s Bolsa Mexicana de Valores in October 2013.