Can the WFE Push Companies to Take ESG Reporting Seriously?

New guidance from the World Federation of Exchanges aims to boost environmental, social and governance disclosure among corporations.


Kristen Sullivan is all too familiar with the reasons that public companies give for failing to report on their environmental, social and governance (ESG) metrics. Sullivan, who leads the sustainability reporting, assurance and compliance services for the U.S. arm of professional services firm Deloitte Touche Tohmatsu, keeps hearing the same refrain: On earnings calls, investors don’t ask about nonfinancial benchmarks, corporate clients tell her. Such disclosure is a waste of time and resources, they say. And what should companies be reporting in such areas, exactly? There’s no clear standard for publishing ESG indicators, as there is for financial information.

In response, Sullivan often points out that her clients spend time completing surveys because they care about their ESG ratings. Still, companies don’t necessarily see that effort as representative of investor demand, she says. This clutch of surveys is too far below the radar to register with corporates in a big way.

But Sullivan predicts that ESG reporting guidance issued last October by the World Federation of Exchanges, the trade group for the world’s stock exchanges, will strike a chord with companies — perhaps more strongly than any previous initiative. The WFE’s 64 member exchanges can choose whether to make the reporting directives mandatory for listed companies or adopt them as voluntary guidelines. Either way, Sullivan says her corporate clients are paying close attention.

“Guidance as issued by the World Federation of Exchanges, a credible organization globally, elevates the rigor, the credibility” of ESG reporting, says the Stamford, Connecticut–based executive. “It’s not a nonprofit that a company can conveniently ignore.”

As of November there were 45,796 companies listed on WFE exchanges, with a total market capitalization of $63.7 trillion. In drafting its guidance, the WFE drew from existing ESG regulations among member exchanges and various reporting frameworks, including those issued by Britain’s CDP (formerly known as the Carbon Disclosure Project), the international Global Reporting Initiative and the Sustainability Accounting Standards Board in the U.S. The result is a list of 33 key performance indicators, such as carbon intensity, water management and the ratio of CEO to employee pay.

When it comes to ESG reporting, many exchanges have already taken a stand. In the latest sustainability survey of WFE members, 32 out of 52 respondents said that their listed companies were required to disclose ESG information. For roughly half of the group with mandatory disclosure, the rules were a combination of exchange and regulator requirements.


For their part, investors say they are eager to have a more formal and internationally consistent ESG reporting framework. Last October, Michelle Edkins, global head of corporate governance and responsible investment at asset manager BlackRock, published an op-ed in Pensions & Investments magazine in which she called the ESG data sources that her firm must rely on a “patchwork.” She demanded that stock exchanges take the lead in requiring more ESG data from companies so that big investors can enjoy some standardization within the ESG reporting they have access to.

“As an investor across multiple global markets, we’re keen to see some consistency with regional variation,” San Francisco–based Edkins tells Institutional Investor. “It has to be relevant to the companies in that region, but equally it has to be understandable on a consistent basis across multiple markets.”

Evan Harvey, Washington-based director of corporate responsibility at the Nasdaq Stock Market and chairman of the WFE working group that drafted the guidance, acknowledges that in regions with large, competitive initial public offering markets — especially New York and London — ESG disclosure is likely to remain voluntary because exchanges and regulators fear pushing away new issuers with what could be perceived as burdensome rules.

The fact that U.S. regulators probably won’t force companies to do ESG reporting is a major reason why Nasdaq chose to help push the WFE initiative, Harvey adds. “We want this to be a unified multilateral effort,” he says, “with all the stock exchanges in the world acting with one voice to try and drive some change — not one or two or a dozen exchanges exploiting a competitive disadvantage.”

Nasdaq has yet to release voluntary ESG guidance of its own based on the WFE recommendations. The exchange is still trying to determine how best to proceed, Harvey explains. He points to the U.K., where regulators require companies to report on their financials twice a year. “They’ve gotten out of the quarterly churn, which takes up a lot of time with financial disclosures, so they can focus their disclosures on more long-term projects like sustainability,” Harvey says. “That’s an interesting model to contemplate as we try to figure out what the right direction is.”