Companies to Duck Stock Exchange ESG Guidance, Study Says

by | Dec 5, 2012

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During 2012 many stock exchanges globally announced new rules for the disclosure of non-financial information on environmental and social issues, but weak enforcement mechanisms mean that most CFOs and investor relations directors will opt out of following the guidance, according to a report from independent analyst firm Verdantix.

The report benchmarks the non-financial reporting rules of ten stock exchanges around the world with combined market capitalization of $15 trillion representing more than 15,600 listed firms. Several of the markets are in emerging economies such as China and India, leaving behind larger rivals in Europe, Japan and the US, according to Stock Exchange Benchmark On Non-Financial Reporting Rules.

Disclosure rules are prominent in emerging economies such as India, where investment in extractive industries can have significant impacts on local communities, according to the report. Integrated reporting of financial and sustainability performance has been spearheaded in South Africa by the King Code of Governance Principles.

Examples of national legislation requiring environmental disclosures in Europe include the French market’s requirement for firms listed on NYSE Euronext to report against 42 environment, social and governance indicators. From April 2013, 1,800 firms listed on the London Stock Exchange must disclose greenhouse gas emissions data, due to a new UK government regulation implemented by the exchange, the report says.

Despite this flurry of activity, the report found that even firms listed on stock exchanges with comprehensive non-financial reporting guidance “do not face financial, legal or reputational penalties for non-disclosure.”

Furthermore, industry titans like NASDAQ and NYSE do require complete disclosure on ESG risks. Without broader applicability and stricter enforcement, most CFOs and investor relations directors will “dodge the bullet” and rely on the head of sustainability “to conduct blocking and tackling” when investors request data, Verdantix says.

Stock exchanges covered in the report are the Australian Securities Exchange, BM&FBOVESPA, Bombay Stock Exchange, Bursa Malaysia, NYSE Euronext Paris, Hong Kong Stock Exchange, Johannesburg Stock Exchange, London Stock Exchange, Shanghai Stock Exchange and Taiwan Stock Exchange.

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