As Summer 2020 Nears End in Northern Hemisphere – Quo Vadis, Corporate Sustainability and ESG/Sustainable Investing?

September 14 2020

By Hank Boerner – Chair & Chief Strategist, G&A Institute

This has been a strange summer in the northern climes, as the corporate sector and capital markets players meet the challenges of the Big Three crises — Corona virus pandemic, economic downturn, and widespread civil protests.

In times of crises (and as we have at least three major crisis situations occurring all at once to deal with this summer) certain actions may take a back seat.  Not so with forward movement of corporate sustainability and ESG/sustainable investing in summer 2020.

We bring you brief updates on some of these trends that continue to shape the interactions of companies and their providers of capital.

First –– worldwide, ESG/sustainable investing index funds reach a record of US$250 billion, with the crises appearing to accelerate investors’ moves into these passive and actively managed investment instruments.

Consider:

  • Before COVID-19, sustainability funds were already experiencing major growth, with assets doubling over the past three years.
  • Actively-managed ESG mutual funds continue to attract the lion’s share of dollars and represent a much larger portion of the sustainable investing landscape. Combined inflows into both active and passive ESG-focused funds reached $71.1 billion during the second quarter — pushing global AUM above the $1 trillion mark for the first time.
  • In the USA, sustainable index funds still make up less than 1% of the market – lots of room for growth here!
  • According to a recent survey conducted by Morgan Stanley’s Institute for Sustainable Investing, nearly 95% of Millennials are interested in sustainable investing, while 75% believe that their investment decisions could impact climate change policy.

On the corporate sustainability side, Goldman Sachs shares the view that oil & gas enterprises could lead the way into a lower-carbon economy. Perhaps.  Will take leadership and action – very soon.

The sector’s leading equities players limped in value this summer and there are many challenges still ahead – but, says a Goldman Sachs report, a new European Union rule in 2021 could accelerate the oil & gas companies’ shift into more sustainable activities.  The industry leaders can leverage their brands and trading capabilities to acquire power customers, thinks GS analysts.  And exert leadership.

And the “octopus” that many retailers see encircling their businesses, Amazon, is pushing ahead with The Climate Pledge (founded by Amazon and Global Optimism in September 2019) with an important commitment:  meeting the Paris Agreement goals a decade early!

Info: https://sustainability.aboutamazon.com/about/the-climate-pledge

Mercedes-Benz is the latest signatory to the pledge.  And look at what these moves can mean in practical business terms:  Amazon will add 1,800 electric Mercedes-Benz vans to its delivery fleet in Europe in 2020!  Other big-name corporate signatories include Verizon, Infosys, and Reckitt Benckiser.

Not quite a quiet summer in the corporate sector and capital markets, we would say!

On to Fall now in the Northern climes and a most welcome Spring season in the Southern Hemisphere, 2020 into 2021.

These are the Top Stories picks for you this week – and there are important items in the categories as well.  Happy Welcome to Autumn and Spring, wherever you are from the G&A Institute team.

Top Stories

Research We Can Use As We Consider the Changes To Come in a Lower-Carbon Economy

By Hank Boerner – Chair & Chief Strategist – G&A Institute

There certainly is a large body of research findings and resulting projections of what to expect as society moves toward a lower-carbon global economy.  The research comes from the public sector, academia, NGOs, capital market organizations, and scientific bodies.  One of the most comprehensive of analysis and projections is the National Climate Assessment produced periodically by the U.S. federal government. 

One reliable source of research that we regularly have followed for many years is the The National Bureau of Research (NBER), a not-for-profit “quant” research organization founded 100 years ago in Boston, Massachusetts.  The organization boasts of a long roster of economic experts who issue many Working Papers during the year (1,000 or more) with permission granted to reproduce results.

Such is the stature of NBER over many years that this is the organization that issues the official “start and end” of recessionary periods in the U.S. (you probably have seen that mentioned in news stories).

Lately NBER researchers have been focused on ESG-related topics.  We are sharing just a few top line research results here for you.

Research Results: California’s Carbon Market Cuts Inequality in Air Pollution Exposure

In NBER Working Paper 27205, we learn that California’s GhG cap-and-trade program has narrowed the disparity in local air pollution exposure between the disadvantaged populations and others.  The state’s is second largest carbon market in the world after the European Union’s cap-and-trade (based on total value of permits).

Early on there were concerns that market forces could worsen existing patterns in which disadvantaged neighborhoods would be exposed to even more pollution that better-off counterparts.  Not so, say researchers Danae Hernandez-Cortes and Kyle C. Meng, who examined 300 facilities in the 2008-2017 period.

Findings:  The gap in pollution exposure between disadvantaged and other communities in California narrowed by 21% for nitrogen dioxide; 24% for sulfur dioxide; and 30% for particulates following the introduction of cap and trade. (This between 2012, the start of the state’s program, and 2017).  The researchers labeled this the “environmental justice gap”.

California’s law caps total annual emissions of GhGs, regulating major stationary GhG-emittting sources, such as utilities.  Putting a price on carbon encourages firms to buy emissions permits or carbon offsets.  The researchers say that shifting emission cuts from high-to-low abatement cost polluters, cap-and-trade can be more cost-effective than imposing uniform  regulations on diverse industries.  But – “where” pollution is generated could be altered by market forces and either exacerbate or lessen existing inequities in pollution exposure.

Research Findings:  Building in Wildland-Urban Interface Areas Boosts Wildlife Fire Costs

Speaking of California, over the past few years (and even today as we write this commentary) wildfires have affected large areas of the state.  Who pays the cost of firefighting as more people build homes in high fire-risk areas near federal and state-owned public land?

Researchers Patrick Baylis and Judson Boomhower in NBER Working Paper 26550 show that a large share of the cost of fire fighting is devoted to trying to prevent damage to private homes and borne by the public sector…where there is “interface” between wild areas and urban areas. The guarantee of federal protection generates moral hazard because homeowners do not internalize the expected costs of future protection when they decide where to live or how to design and maintain their homes.

The net present value of fire protection subsidies can exceed 20% of a home’s value.  For 11,000 homeowners in the highest risk areas of the American West, the researchers calculated a subsidy rate of 35% of a home’s value…compared to only 0.8% in the lowest risk area.  And, about 84,000 more homes have been built in high risk areas (than would have been the case) had federal wildlife protection not lowered the cost of homeownership in those areas.

Fire protection provided by the public sector effectively subsidizes large lot sizes and low-density development and may reduce the private incentive to choose fireproof building materials and clear brush around the home.  Fire protection costs level off about 6 acres per home (suggesting cluster development is more preferable).

As we consider the impacts of climate change (drought, high winds, other factors becoming more prevalent), the role of local and state governments in zoning, land use and building code decision-making is key to addressing fire prevention.  Nice to live near to preserved state and federal land…but not sometimes.

Research to Consider:  Environmental Preferences, Competition, and Firm’s R&D Choices

In NBER Working Paper 26921, we learn that consumers’ environmental preferences do affect companies’ decisions to invest in environmentally-friendly innovations.  Buyers care about the environmental footprint of the products they buy.  And so companies do consider these preferences when they make R&D decisions.  (That is, choosing “dirty” or “clean” innovations to invest in.)

Companies use data on patents, consumers’ environmental preferences, and product-competition levels in the automobile manufacturing  industry.  Researchers Philippe Aghion, Roland Benabou, Ralf Martin and Alexandra Roulet looked at 8,500 firms in 42 countries, studying the period 1998-2012 to try to determine how companies in the industry respond to detected changes in consumer preferences.

Findings include:  Firms in auto-related businesses whose customers are environmentally-focused are more inclined to develop sustainable technologies, particularly in markets defined by higher levels of competition.

One effect reported is that for firms with more sustainability-minded consumers, the growth rate of “clean” patents is 14% higher than for “dirty” patents…and is 17% higher in more competitive markets.

Individual consumer preference for “buying green” may not have a direct impact on pollution short-term — but over time such preferences can alters an auto company’s willingness to invest in R&D focused on environmentally-friendly products.

Research Investors Think About:  Could Undeveloped Oil Reserves Become “Stranded” Assets?

If the vehicle shopper wants to “buy green” and is seeking “environmentally-friendly” products, what is the long-term effect on vehicle manufacturing if that segment of the market grows — especially in highly-competitive markets?  Do these preferences mean buyers will move away from fossil fuel-powered vehicles…and over time the in-the-ground assets of energy companies will become “stranded”?

Researchers Christina Atanasova and Eduardo S. Schwartz examined the relationship between an oil firm’s growth in “proved” assets and its value.  The question they posed for their research NBER Working Paper 26497 was: “In an era of growing demands for action to curb climate change, do capital markets reflect the possibility that some reserves may become “stranded assets” in the transition to a low-carbon economy?”

They looked at 679 North American producers for the period 1999-2018; the firms operating (as they described) in an environment of very low political risk and foreign exchange exposure…and with markets that are liquid, with stringent regulation and monitoring (unlike companies in countries with markets that are more easily manipulated, among other factors).

Findings: Capital markets only valued those reserves that were already developed, while growth of undeveloped reserves had a negative effect on an oil firm’s value.  The negative effect was stronger for producers with higher extraction costs and those with undeveloped reserves in countries with strict climate policies.  This reflects, they said, consistency with markets penalizing future investment in undeveloped reserves growth due to climate policy risk.

These are a small sampling of NBER research result highlights.  The full reports can be purchased at NBER individually or by annual subscription.  Contact for information about Working Papers and other research by the organization is:  NBER, 1050 Massachusetts Avenue, Cambridge, MA 02138-5398.

 

 

G20 & Central Banks Response on COVID-19 — Global Challenge Requires Global Response

By Sofia Yialama – Sustainability Reporting Analyst-Intern, G&A Institute

Exploring how the G20 leaders plan to preserve the global financial safety.

The G20 Group, representing both developed and developing countries and the 80% of the world’s economic output, recently expressed its willingness and responsibility to undertake an immediate, coordinated and bold response on the current global health and economic crisis.

At the latest virtual G20 Leader’s Summit, the leaders of the world’s largest economies committed to amplify their fiscal, credit and monetary support aiming to bolster the resilience and stability of the global economy, provide adequate stimulus packages and safeguard the global market from a global recession.

In a spirit of cooperation and readiness to support the global economy, the G2O nations, among other commitments, pledged to underpin the global economy with over US$5 trillion, as part of targeted fiscal policy, economic measures, and guarantee schemes.

All together, they expressed their support to the central banks and highlighted the urgent need for cooperation between them and the International Monetary Fund (IMF) and the World Bank in order to mobilize emergency funding.

To surmount the socio-economic impact from COVID-19 and ensure market recovery in all countries, they also mandated their respective Finance Ministers and Central Bank Governors to develop a G20 joint action plan.

Following the G20 Leader’s Communiqué, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC Ministerial Meeting on 9th April and the G20 Energy Ministers Meeting on 10th April, were both crucial for the global economic stability.

“OPEC+” (“plus”) is joining forces with the G20 to coordinate the supply/demand imbalance in the international oil market and finally work to end the recent oil price war during such exceptionally difficult times. This was characterized as ‘a historic show of cooperation” and “by far the biggest supply deal in history”.

Enough Effort – Is More Action Needed?

Are these actions enough to counteract the detrimental coronavirus impact on the global economy?

Front-line international organizations — such as the United Nations, the International Chamber of Shipping (ICS) and the International Association of Ports and Harbours (IAPH) — have called on G20 leaders to provide explicit support to vulnerable countries and sectors in high risk, respectively.

At the same time, a strong international group, including various former presidents and prime ministers, with an open letter to G20 leaders, asked them to set up a G20 Executive Task-force and accelerate the development of an action plan for COVID-19, along with targeted financial packages to support the global health system and provide essential financial aid to the developing countries, especially in Africa.

These facts showcase that the world needs urgent coordinated action.

Which system will last by the end of the virus crisis? The cooperation pact or the self-protectionism?

How the central banks of key G20 members responded on COVID-19

In 2009, after the 2008 global financial crisis, the G20 group urged the establishment of the Financial Stability Board (FSB) to gather treasury ministries and central bank governors together with the aim of coordinating actions and find solutions for the global financial system’s vulnerabilities.

For this reason, it is highly important now to examine how the central banks of the world’s largest economies have responded during the pandemic.

Central banks have taken surprising credit, regulatory and monetary measures to ensure adequate liquidity in the market and uphold the credit safety of businesses and households.

And at this moment, as the rampant spread of the virus continues, every day each of the banks announce additional financial packages to prevent the economic collapse.

So far, the central banks of key G20 member countries — notably the US Federal Reserve (Fed), the European Central Bank (ECB), the People’s Bank of China (PBOC), the Bank of Japan (BOJ), and the Bank of England (BOE) — have moved to:

  • monetary policy easing and unprecedented cut of interest rates,
  • increasing lending,
  • provision of cheaper loans and new funding schemes,
  • emergency free lending to other financial and non-financial institutions,
  • easing bond issuance, and
  • additional incentives for SMEs.

Further, as a joint response, the central banks of the U.S., Canada, Japan, Euro Area, the U.K., and Switzerland, enhanced further the provision of liquidity via the standing US dollar liquidity swap line arrangements.

The extraordinary measure of cutting rates to near zero started from the U.S. Fed and triggered similar measures by other central banks all over the world — such as in New Zealand, Japan and South Korea and Australia.

As a result, this extreme U.S decision spurred the “domino effect” and so, other non-G20 central banks followed on reducing their interest rates.

Are these coordinated measures enough to save the global financial system?

The answer is still vague, as the pandemic is still ongoing in all the affected countries.

As the title of this document says, a global challenge requires a global response.

The world economies now are called to action in order to secure a sustainable and resilient future.

# # #

About the Author

Sofia Yialama is a GRI-certified Senior Sustainability Research Analyst from Greece. She holds a Bachelor and MSc degree in International and European studies and her areas of expertise include international relations, international cooperation and sustainable development.

As a former E.U Projects Consultant and member in regional Task Forces, she has significant experience in project management in sectors such as

Sustainability in the Blue Economy sectors, Green Economy, Sustainable Tourism and Nature-Based solutions.

Her solid career objective and self-motivation is to inspire, influence and develop initiatives and projects coupled with multilateral partnerships towards achieving “Sustainability Transition” in the private sector.

# # #

References 

  1. https://g20.org/en/media/Documents/FMCBG_Extraordinary_Press%20Release.pdf
  2. https://g20.org/en/media/Documents/G20_PR_Second%20Virtual%20FMCBG%20Meeting_30%20March_ENG%20(1).pdf
  3. https://g20.org/en/media/Documents/Virtual_Leaders_Summit_King_Salman_Opening_Remarks_EN.pdf
  4. https://g20.org/en/media/Documents/G20_Extraordinary%20G20%20Leaders%E2%80%99%20Summit_Statement_EN%20(3).pdf
  5. https://www.theguardian.com/world/2020/apr/07/coronavirus-global-leaders-urge-g20-to-tackle-twin-health-and-economic-crises
  6. https://www.japantimes.co.jp/opinion/2020/04/08/commentary/world-commentary/now-never-global-leadership-covid-19/#.XpMfFMgzbIU
  7. https://www.ft.com/content/150df67ba-839f-455a-9546-6edf72a08df0
  8. https://www.opec.org/opec_web/en/press_room/5882.htm
  9. https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#U
  10. https://www.bankofengland.co.uk/coronavirus
  11. https://www.piie.com/blogs/realtime-economic-issues-watch/timeline-central-bank-responses-covid-19-pandemic
  12. https://www.oecd.org/about/secretary-general/Coronavirus-COVID-19-Joint-actions-to-win-the-war.pdf
  13. https://www.federalreserve.gov/newsevents/pressreleases/monetary20200409a.htm
  14. https://www.boc.cn/en/
  15. https://www.boj.or.jp/en/index.htm/
  16. https://www.ecb.europa.eu/home/html/index.en.html
  17. https://www.seatrade-maritime.com/regulation/ics-iaph-joint-call-g20-support-maritime-sector-and-global-supply-chains
  18. https://www.reuters.com/article/us-health-coronavirus-central-banks-glob/global-central-banks-pull-out-all-stops-as-coronavirus-paralyzes-economies-idUSKBN2130KR
  19. https://www.un.org/sg/en/content/sg/note-correspondents/2020-03-24/note-correspondents-letter-the-secretary-general-g-20-members

Corporate Sustainability Reporting – New EU Directive Applies to Many of the S&P 500 – Not Just for EU Companies

by Hank Boerner, Chairman, G&A Institute

Last week the G&A team released the results of the analysis of sustainability disclosure and reporting by the US large-cap companies included in the S&P 500 Index — 72% of the companies published reports in 2013.

That was a dramatic increase from the first year of our analysis (for year 2011, with just under 20% of companies reporting) and a fast rise from the 2012 level of 53% reporting (a clear majority of the S&P 500 were by then reporting on their sustainability).

What we see at the end of the year 2013 tally is that 28% of the companies are not reporting. A shrinking minority.  But wait — there is another important consideration for the S&P 500 universe and other U.S. companies. AND – for other companies in other countries.

Tune in to the European Union Directive, adopted recently, mandating that companies in the EU’s 28 states with 500 or more employees, or certain levels of revenue, or condition of the balance sheet, will have to begin publishing CSR reports. And that includes non-EU companies with issues trading on EU stock exchanges, such as the London, Frankfurt, Milan, Paris, Amsterdam, NASDAQ OMX, and others.

In reading the final Directive, we see this phrase: “The Accounting Directives regulate information provided in the financial statements of all limited liability companies which are incorporated under the law of a Member State or European Economic Areas (EEA). As Article 4(5) of the Transparency Directive refers to Article 46 of the Fourth Directive and to Article 36 of the Seventh Directive, the amendments [to the proposed] provision will also cover companies listed on EU regulated markets even if they are registered in a third country.”

We checked with the authoritative Europe Direct Contact Center to see if we understand this correctly — the center verified that the April 15, 2014 text as adopted by the parliament included this language.

So — the U.S. large-cps included in the S&P 500 benchmark not publishing non-financial reports at all will be covered by the Directive.

Note this: 118 S&P 500 companies are not publishing sustainability reports – and – are listed on an EU-regulated exchange. These companies are in various sectors, such as:

Consumer/Discretionary – 26 companies
Consumer/Staples – 5 companies
Energy – 15 companies
HealthCare – 16 companies
Industrials – 18 companies
Information Technology – 20 companies
Materials – 1 company
Telecomm Services – 2 companies

What is holding these companies back? Lack of understanding of the importance of non-financial reporting to stakeholders? Inertia? Resistance to the trend (with 72% of peers clearly setting the pace now)? Reluctance to disclose lagging ESG performance indicators? Belief that sustainability “costs” money? Just being stubborn?

Whatever the reason, at least two important drivers are now pressing in on holdout boards and managements — (1) peer pressure within the S&P 500 universe, and (2) the coming mandate for the 118 companies listed on EU stock exchanges, if we read the Directive correctly.

Add in other drivers — such as supply chain pressure (with major customers asking their prime suppliers for ESG performance information); and, rising investor expectations (many mainstream asset owners and managers are adopting sustainable investing approaches for portfolios).  It probably won’t be long before we see only a slim minority of the 500 large-cap companies holding out on publishing ESG performance information.

And then…we see the trend moving rapidly down the market cap food chain to other large-caps, mid-caps, small-caps, and on and on.  Until sustainability reporting is viewed to be as important (to get it right, and include material content of all kinds) as traditional financial reporting for public companies.  And – privately owned companies…for sure.

We have come so far, so fast in the expansion of corporate and institutional sustainability / responsibility reporting, haven’t we!

Does the Draft EU Directive for Mandatory Sustainability Reporting Apply to US Companies? AND – Stock Exchanges Move One Big Step Closer Towards GLOBAL Mandatory Reporting As Well

By Louis D Coppola @ G&A Institute..

I received an overwhelming response to the post on March 17, 2014 concerning the European Unions moves to make Sustainability / CSR reporting mandatory.  For those of you that have not read my original post you can take a look here:

http://ga-institute.com/Sustainability-Update//2014/03/17/european-union-moves-closer-to-make-sustainability-csr-reporting-mandatory-in-all-28-member-countries/

A question that came up a lot was whether or not this would apply to US companies operating in the European Union with more than 500 employees.  This is a great question and although I had heard through the grapevine that it would apply, I did not feel certain enough to state that fact because I could not find an official statement or clause that I had found in draft directives.  I had only heard this from other practitioners, in other articles etc that it would impact US companies.

Then I received an email from Carly Greenberg and Tim Smith at Boston Trust thanking me for the post, and calling my post “informative”.  I am very fond of Tim Smith and a real fan of his tremendous work in driving SRI over his entire 40+ year career with ICCR and now with Walden Asset Management – I sometimes refer to him as one of the Godfathers (Hey – I’m Italian and from NY so.. forgive me )  of SRI so I was very humbled to get this email and I knew that I had to find the answer to this question.  I consider myself lucky that over my relatively short career in Sustainability (14 years) Tim and I have crossed paths, shared panels, and discussed issues in some depth.  He has truly impacted the field more than almost anyone (and continues to today), and has impacted my career / thoughts etc dramatically.  (Thanks Tim!)

EUREKA! – I did find the copy of the draft directive itself and after reading through it with a fine toothed comb I came across a clause which I believe to be the smoking gun which was under section 3 “LEGAL ELEMENTS OF THE PROPOSAL” (the bold part is the important part):

The Accounting Directives regulate the information provided in the financial statements of all limited liability companies which are incorporated under the law of a Member State or European Economic Area (EEA). As Article 4(5) of the Transparency Directive refers to Article 46 of the Fourth Directive and to Article 36 of the Seventh Directive, the amendements proposed to these provisions will also cover companies listed on EU regulated markets even if they are registered in a third country.

Based on this clause, any company that trades on at least one of the many stock exchanges in the European Union (most global companies) which you can see in this list taken from a Wikipedia article number over 100+:

Economy Exchange Location Founded Listings Link
European Union European Union Euronext Amsterdam 2000 1154 Euronext
GXG Markets Horsens 1998 GXG
Albania Albania Tirana Stock Exchange Tirana 1996 TSE
Armenia Armenia Armenian Stock Exchange Yerevan 2001 12 NASDAQ OMX Armenia
Austria Austria Vienna Stock Exchange Vienna 1771 99 WB
Azerbaijan Azerbaijan Baku Stock Exchange Baku 2000 BFB
Belarus Belarus Belarus Currency and Stock Exchange Minsk 1998 BVFB
Belgium Belgium Euronext Brussels Brussels 1801 213
Bosnia and Herzegovina Bosnia and Herzegovina
– Bosnia and HerzegovinaFederation of Bosnia and Herzegovina Sarajevo Stock Exchange Sarajevo 2001 SASE
– Republika Srpska Republika Srpska Banja Luka Stock Exchange Banja Luka 2001 BB
Bulgaria Bulgaria Bulgarian Stock Exchange Sofia 1914 BFB
GuernseyJerseyChannel Islands Channel Islands Stock Exchange Guernsey 1987 1000 CISX
Croatia Croatia Zagreb Stock Exchange Zagreb 1991 ZB
Cyprus Cyprus Cyprus Stock Exchange Nicosia 1996 HAK
Czech Republic Czech Republic Prague Stock Exchange Prague 1861 29 PX
Denmark Denmark Copenhagen Stock Exchange Copenhagen 1620 172 OMX Nordic Market
GXG Markets Horsens 1998 GXG Markets
Estonia Estonia Tallinn Stock Exchange Tallinn 1920 OMX Baltic Market
Faroe Islands Faroe Islands Faroese Securities Market Tórshavn 2004 VMF
Finland Finland Helsinki Stock Exchange Helsinki 1912 130 OMX Nordic Market
France France Euronext Paris Paris 1724 1301 Euronext Paris
MATIF Paris 1986 MATIF (Euronext)
Georgia (country) Georgia Georgian Stock Exchange Tbilisi 1999 261 SSB
Germany Germany Berliner Börse Berlin 1685 Börse Berlin
Börsen Hamburg und Hannover Hamburg/Hanover BÖAG
Börse München München 1830 Börse München
Börse Stuttgart Stuttgart 1861 Börse Stuttgart
Deutsche Börse Group Frankfurt Deutsche Börse Group
Eurex Frankfurt 1998 EUREX
Frankfurt Stock Exchange Frankfurt 1585 FWB
Gibraltar Gibraltar Gibraltar Stock Exchange Gibraltar 2006 GibEX
Greece Greece Athens Stock Exchange Athens 1876 ATHEX
Hungary Hungary Budapest Stock Exchange Budapest 1864 52 BET
Iceland Iceland Iceland Stock Exchange Reykjavík 1985 11 OMX Nordic Market
ICEX
Republic of Ireland Ireland Irish Stock Exchange Dublin 1793 ISE or ISEQ
Irish Enterprise Exchange Dublin 2005 IEX
Italy Italy Borsa Italiana Milan 1808 BIt
Kazakhstan Kazakhstan Kazakhstan Stock Exchange Almaty 1993 KASE
Latvia Latvia Riga Stock Exchange Riga 1816 OMX Baltic Market
Lithuania Lithuania Vilnius Stock Exchange Vilnius 1993 OMXV
Luxembourg Luxembourg Luxembourg Stock Exchange Luxembourg (city) 1927 Bourse de Luxembourg
Republic of Macedonia Macedonia Macedonia Stock Exchange Skopje 1995 MSE
Malta Malta Malta Stock Exchange Valletta 1992 Borza Malta
Moldova Moldova Moldova Stock Exchange Chişinău 1994 BVM
Montenegro Montenegro Montenegro Stock Exchange Podgorica 1993 MNSE
Netherlands Netherlands Euronext Amsterdam Amsterdam 1602 Euronext Amsterdam
Norway Norway Oslo Stock Exchange Oslo 1819 Oslo Børs
Poland Poland Warsaw Stock Exchange Warsaw 1817 439 WSE
Portugal Portugal Euronext Lisbon Lisbon 1769 66 Euronext Lisbon
OPEX Lisbon 2003 OPEX
Romania Romania Bucharest Stock Exchange Bucharest 1882 70 BVB
RASDAQ Bucharest 1996 1486 BVB
Sibiu Stock Exchange (futures) Sibiu 1997 BMFMS
Russia Russia Moscow Interbank Currency Exchange Moscow 1992 MICEX
Russian Trading System Moscow 1995 RTS
Saint Petersburg Stock Exchange Saint Petersburg 1811 SPBEX
Serbia Serbia Belgrade Stock Exchange Belgrade 1894 BELEX
Slovakia Slovakia Bratislava Stock Exchange Bratislava 1991 BSSE
Slovenia Slovenia Ljubljana Stock Exchange Ljubljana 1989 61 LJSE
Spain Spain Bolsa de Valores de Barcelona Barcelona Bolsa de Barcelona
Bolsa de Valores de Bilbao Bilbao Bolsa de Bilbao
Madrid Stock Exchange Madrid 1831 Bolsa de Madrid
Mercado Oficial Español de Futuros y Opciones Madrid 1989 MEFF
Bolsa de Valores de Valencia Valencia Bolsa de Valencia
Sweden Sweden Nordic Growth Market Stockholm 2003 NGM
Stockholm Stock Exchange Stockholm 1863 289 OMX Nordic Market
Switzerland Switzerland SIX Swiss Exchange Zürich 1850 SIX Swiss Exchange
Bern eXchange Bern 1888 BX
Turkey Turkey Borsa Istanbul Istanbul 1985 417 BIST
Ukraine Ukraine PFTS Ukraine Stock Exchange Kiev 2002 PFTS Stock Exchange
Ukrainian Exchange Kiev 2008 UX
United Kingdom United Kingdom London Stock Exchange London 1801 2800 LSE
PLUS Markets London 2004 [N 1] PLUS Markets

 

If you are a publicly traded company and trade on any of the exchanges above you will be affected by this directive.

Also, it is interesting to see that NYSE and NASDAQ both are represented in some ways on this list above. For example NYSE and Euronext are owned by the same parent company – The IntercontinentalExchange Group (ICE).  Euronext has connections to the markets in Belgium, France, the Netherlands, Portugal, and the UK.

The NASDAQ OMX seems to have its name (both OMX and NASDAQ) associated with several exchanges above including Armenia, Denmark, Estonia, Finland, Iceland, Sweden etc.

I’m not sure how these connections tie into this directive, but I think its interesting to point them out as the world becomes more global and exchanges become truly global how do regulations like the EU directive, with the clause above effect these global exchanges?  And what does that mean going forward?

It gets even more interesting when you look at the fact that the NYSE and the NASDAQ are both signatories of the Sustainable Stock Exchanges Initiative (SSEI): http://www.sseinitiative.org/.

The initiative comes from a collaboration between PRI, UNEP, UNCTAD, and UNGC and many of the partners in the initiative already have listing requirements for Sustainability reporting (ex, JSE , BM&F Bovespa).

To become a partner exchange SSEI asks that the exchange publicly endorses the following statement:

We voluntarily commit, through dialogue with investors, companies and regulators, to promoting long term sustainable investment and improved environmental, social and corporate governance disclosure and performance among companies listed on our exchange.

They have also both done their own GRI Sustainability Reports:

NASDAQ: http://www.nasdaqomx.com/digitalAssets/84/84295_2012nasdaqomxsustainabilityreportv2.pdf

NYSE: https://www.nyx.com/sites/www.nyx.com/files/14977_2012_cr_report_130803.pdf

AND

BREAKING NEWS out of Boston (Mar 26th, 2014) – as I write this article CERES, BlackRock (the largest asset manager in the world) and other major institutional investors released their recommendations for listing requirements on exchanges titled:

Investor Listing Standards Proposal: Recommendations for Stock Exchange Requirements on Corporate Sustainability Reporting

These standards will be sent directly to the World Federation of Exchanges (WFE – the trade group for exchanges) who has launched a Sustainability Working Group to discuss and debate sustainability disclosure issues with member exchanges (virtually all global exchanges in the world).

Here’s what NASDAQ had to say:

“We need a joint solution that will help bring more consistent and comparable information to all markets, and will not leave any one exchange at a competitive disadvantage for taking leadership in this space,” NASDAQ OMX CEO Robert Greifeld said, speaking of the sustainability disclosure engagement process. NASDAQ OMX and Ceres have been working together for almost two years on this issue. 

NASDAQ OMX Vice Chairman Meyer “Sandy” Frucher stressed, “What we hope comes out of this process is strong support by exchanges around the globe to move together to create a more uniform approach to sustainability reporting.

“We committed last year, at the urging of institutional investors within Ceres’ Investor Network on Climate Risk, to provide thought leadership for our listed companies on sustainability reporting guidance,” Frucher continued. “To provide us with greater clarity on what investors want in such guidance, INCR, with support from the Principles for Responsible Investment, launched a global consultation among investors, and presented us with a proposal that we are now discussing with other exchanges.”

Here’s what BlackRock had to say:

“Cross border collaboration by stock exchanges will help shift public companies towards more comparable and meaningful disclosure of ESG (environmental, social and governance) risk factors,” said Gwen Le Berre, Vice President of Corporate Governance and Responsible Investment at BlackRock, the world’s largest asset manager with $4.3 trillion in assets under management. “This will enable investors to more accurately value companies and make better informed investment decisions.”

 

Here is the full release which has many other quotes from very important people in very important places demonstrating their commitment to moving this forward:

http://www.ceres.org/press/press-releases/world2019s-largest-investors-launch-effort-to-engage-global-stock-exchanges-on-sustainability-reporting-standard-for-companies

To read the release on the WFE launching its Sustainability Working Group, visit: http://www.businesswire.com/news/home/20140325006381/en/World-Federation-Exchanges-WFE-Launches-Sustainability-Working#.UzL2styt-_Y

The following exchanges came together to initially launch the WG:

  • BM&FBOVESPA
  • Borsa Istanbul
  • Borsa Malaysia
  • CBOE
  • CME
  • Deutsche Börse
  • InterContinental Exchange/NYSE
  • Johannesburg Stock Exchange
  • NASDAQ OMX
  • National Stock Exchange of India
  • Shenzhen Stock Exchange

So when you take all of this into account, why are you still reading this article, and why haven’t you already started working with me to get started on Sustainability reporting? 😉

That was a joke of course, but seriously – one way or another you will be affected – so get in front of these coming regulations/mandates because if you are not, you will be scrambling to get in compliance, and in a position of weakness compared to any competitors that are already doing it.  If you are already reporting, kudos to you, and you will be in a position of strength against your competitors – you have strategically positioned yourself well in the new global environment.   Just make sure you are covering all your bases and your reporting is in-line with whats expected and global standards.

This is not to mention the additional pressures for disclosure and transparency coming from:

  • Key Customers
  • Employees
  • Suppliers
  • NGOs
  • Investors
  • Government
  • Community
  • and other Stakeholders

Which I could write a whole additional book about.

I think its clear to see that the question is not SHOULD you start reporting, its HOW will you get started as quickly as possible.  Your window of opportunity to be prepared is closing, and the time is now to move on this if you have been questioning whether or not to get started.

At G&A we continue to watch these trends shaping the global markets.  We position ourselves at the intersection of corporations and the capital market.  We monitor the groups that shaping corporate valuation and reputation in today’s modern global marketplace.  If you have any questions or would like to talk more about these topics please reach out to me at lcoppola@ga-institute.com.

Best,

Louis D Coppola

For your reference here is a copy of the EU draft directive in full:
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52013PC0207

And Here is the EU portal for non-financial disclosures:
http://ec.europa.eu/internal_market/accounting/non-financial_reporting/index_en.htm

 

 

European Union Moves Closer To Make Sustainability / CSR Reporting Mandatory in All 28 Member Countries

Council of the European Union

By Louis D Coppola @ G&A Institute..

We have been closely tracking the European Union’s draft directive for the disclosure of non-financial and diversity information by certain large companies.  A major hurdle has just been cleared to adopt this directive,  it has cleared an important stage in the EU legislative process.

On February 26th, 2014 the Council of the European Union’s Committee of Permanent Representatives endorsed an agreement on the draft directive.  The agreement still needs to be formalized by the European Parliament and the Council, this is expected to take place on April 15th, 2014 which is now less than a month away.

This regulation will apply to all companies with over 500 employees in any of the 28 European Union member countries – which represent the largest economic area in the world.  It is estimated that some 6,000 companies will fall under the scope of the directive.  To put this in perspective there are currently ~2500 global organizations Sustainability reports in the GRI Global Database, whichrepresents one of the most comprehensive databases of sustainability reporting.  Full disclosure:  G&A Institute is the exclusive data partner for the US, UK, and Ireland and is responsible for analyzing all reports of organizations HQ in these countries, and feeding that data into the global GRI database.  You can find out more about the Institute’s important data partner role here:  http://www.ga-institute.com/gri-reporting-data-partner.html

Companies will be required to report annually on:

  1. Environmental Matters
  2. Social Matters
  3. Employee-Related Matters
  4. Respect for Human Rights
  5. Anti-Corruption Matters
  6. Bribery Matters
  7. Diversity Policy

The report will need to include a description of the policies, outcomes and the risks related to these matters.

Directly from the EU Council press release:

The new measures are aimed at strengthening the company’s transparency and accountability, while limiting any undue administrative burden, and ensuring a level playing field across the EU. They will be incorporated into the directive on the annual financial statements and reports of certain types of undertakings, which was adopted on 26
June 20132

This regulation is modeled after the Global Reporting Initiative (GRI) approach of “Report or Explain”.  Any company that does not pursue policies in the area of these matters, will have to publicly and thoroughly explain/state why it has chosen not to do so.

The GRI is one of the frameworks that is referenced in the introductory part of the legislative proposal and the new G4 covers all of the matters in the proposal from environmental to bribery.

Additional Background from the release:

The necessity to improve undertakings’ disclosure of social and environmental information is a part of the EU strategy to promote corporate social responsibility adopted in October 2011, which acknowledged the importance of businesses divulging certain information with a view to identifying risks and increasing investor and consumer trust.

Non-financial reporting is vital for managing change towards a sustainable global economy by combining long-term profitability with social justice and environmental protection. It also helps monitoring undertakings’ performance and their impact on society.

The European Union sees this as a matter of competitiveness in the global marketplace.  As such, the person heading this initiative is the president of the EU Competitiveness Council, Kostas Hatzidakis.  In the official press release Kostas has this to say:

“this decision provides the European Union with the first legislation on non-financial information reporting. Corporate Social Responsibility is an enabling tool for business productivity and contributes to a smart and sustainable growth. It is not only for shareholders but also for stakeholders and citizens that it adds value”.

And the GRI Deputy Chief Executive Teresa Fogelberg commented on the new steps taken by the Europena Union Committee of Permanent Representatives (COREPER) of the governments of the EU member states:

 “This is a great step towards establishing a more robust EU policy framework for reporting and transparency. I praise the determination and cooperation of the EU institutions, particularly the Greek Presidency and the European Parliament Rapporteur Mr Baldassarre, as well as the other actors involved, for such a positive and encouraging achievement. I am confident that, if adopted, this policy would have a great impact on making progress towards smart, inclusive and sustainable growth in Europe and beyond.”

 

Carrots & Sticks III (2013 Edition)

The Governance & Accountability Institute continues to watch this regulation, and many other global regulations as part of its monitoring and research.  G&A contributed the United States portion of the bi-annual GRI research report “Carrots and Sticks” which deep dives into Sustainability reporting policies worldwide, this 2013 report covering 45 countries and regions.

If you’d like to learn more about global regulations you can download the 2013 Carrots and Sticks research publication from our website here:
http://www.ga-institute.com/research-reports/ga-institute-contributes-to-carrots-sticks-iii-2013-edition.html

 

 

The official press release from the Council of the European Union can be seen here: http://gr2014.eu/sites/default/files/Hatzidakis%20COREPER.pdf

 

 

Tuning in to the European Union Changes in Corporate Reporting

By G&A Institute

In April, the European Commission (EC) acted on a proposal calling for new rules – officially, to implement, for a Directive of the European Parliament and of the Council to mandate disclosure of non-financial information and diversity information by large companies (500+employees).

The proposal (prepared by a working group) calls for mandating publication of non-financial information to be included in annual and consolidated financial statements and related reports.

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