Stock markets could and should play a crucial role in helping to create more sustainable global capital markets, according to leading institutional investors.
A group of 24 investors responsible for assets totalling $1.6 trillion has sent a letter to 30 leading stock exchanges calling on them to consider how they can improve sustainability reporting by companies.
The letter, which was signed by mainstream asset management companies and pension funds as well as specialist ethical investors, is part of the Principles for Responsible Investment (PRI) initiative launched in 2008 and backed by the UN. As well as calling for better reporting of environmental, social and governance criteria (ESG) by listed companies, the letter ranks exchanges in a sustainability league table according to the current level ESG disclosure.
Bottom of the table are Nasdaq, the Australian Stock Exchange, Korea Exchange, Santiago Stock Exchange and Philippine Stock Exchange. At the top sit Euronext Paris, Amsterdam and Lisbon, Tokyo Stock Exchange and Borsa Italiana.
Non-disclosure of ESG data is problematic because it makes it difficult for long-term investors to assess the wider ESG risks and opportunities associated with a company, according to Paul Abberley, CEO of Aviva Investors, which is one of the signatories.
“Markets are driven by information,” he says.
However, the simple provision of data will not solve the problem. To be useful, data need to be standardised and comparable.
“Good quality ESG reporting among large companies is not uncommon, but the information being reported lacks comparability and usefulness,” says James Zhan, director of UNCTAD’s division on investment and enterprise. “This investor initiative demonstrates the strong market demand for standardised ESG reporting and greater attention to sustainable development.”
The group of investors and its backers at the UN believe it is now up to stock exchanges to meet this market demand both nationally and globally.
“Stock exchanges can play and important role in mainstreaming best practices nationally and contributing to international efforts to harmonise ESG disclosure,” says Zhan.
The signatories of the letter included major European pension funds, such as Fonds de réserve pour les retraites and AP7. The mainstream asset management signatories included Allianz Global Investors, Aviva Investors, Dexia Asset Management and Sparinvest. Four service providers also signed the letter.
Fiona Rintoul, editorial director
©2011 funds europe