WFE Research Team , London , World Federation of Exchanges | Jun 2017

 

The WFE co-hosted a moderated round-table discussion with the Global Reporting Initiative (GRI) in London on 7 June 2017, focused on effective ESG reporting.

WFE members are increasingly driving greater Environmental, Social & Governance (ESG) understanding and disclosure in their markets. Exchanges are, however, challenged in this role, inasmuch there is lack of consensus amongst investors about which issues are material, and how to incorporate these into their valuations or investment decisions; the emergence of new ESG issue areas; and a proliferation of reporting frameworks and methodologies.

These factors result in issuers (particularly listed issuers) being asked to report ever-increasing amounts of ESG information with no clear sense of how and to what extent it is being used by investors.

In the interests of getting to grips with some of these issues, the WFE co-hosted a moderated round-table discussion with the Global Reporting Initiative (GRI) in London on 7 June 2017. As explained by WFE’s Chief Executive Officer Nandini Sukumar in her opening remarks: “Our members see the provision of fair and orderly markets as central to their mandate. In addition, they recognise the impact that ESG issues may have on corporate performance and investor returns, and potentially the health and vibrancy of markets overall.”

Participants included major listed companies, investors, asset managers and WFE member exchanges. In the discussion, investors agreed there was no common understanding of what issues were material (other than perhaps governance issues), and further suggested that what was material would vary according to industry, region and possibly even the specific company. Company representatives meanwhile noted their frustration at being asked to provide the same ESG information multiple times, in different formats, while on the other hand rarely being asked about their ESG performance during investor engagements. Exchanges noted their concern that this was causing ‘reporting fatigue’ amongst their listed companies, and potentially even more problematically, making it less attractive for companies to use public markets.

As the intention of the session was not just to identify problems, participants were also asked to provide potential solutions. Some of the suggestions coming out of the session were as follows:

1. Continue with advocacy and education

While participants agreed that great progress had been made in enhancing the understanding of both issuers and investors of the importance of ESG issues to the financial health and performance of companies, this was still not mainstream. It is therefore important to continue educating companies, investors and securities market regulators about the relevance of sustainability issues. As part of this advocacy, investors were encouraged to be more explicit when engaging with companies about the importance of ESG issues, and how they were using this disclosure within their evaluation process.

2. Find ways to minimise duplication

To address the problem of reporting fatigue, it is important to find ways to reduce the number of times that companies are required to report the same information. GRI’s Chief Executive Officer Tim Mohin suggested that using the GRI’s Standards could be a way to achieve this: “To be effective, reporting needs to be concise, consistent, current, and comparable. With more streamlined reporting, information reported once can be used several times to comply with different frameworks or communicate with various audiences. We aim to empower reporters to provide high-quality, widely-trusted disclosures using the GRI Standards, which will not only reduce their reporting burden, but also ensure that their ESG information is meaningfully incorporated in investment decisions.”

3. Look at opportunities to streamline reporting requirements

Finally, participants suggested that rather than viewing ESG reporting in a silo, it might be desirable for requirements around ESG reporting to form part of a broader review of the overall reporting requirements for listed companies.

Overall it was an invigorating session, with participants noting they appreciated the interactive and frank nature of the conversation. The WFE and GRI have identified potential action items coming out of the event, which we will pursue in the coming months.

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