Stakeholder Trends and Insights
Study:
Investors Increasingly Factoring Companies' ESG Practices Into Investment Decisions

A World Federation of Exchanges (WFE) survey shows investors are increasingly studying the sustainability practices and policies of companies as a factor in their investment decisions.

39 percent of respondents to the global exchanges survey (22 out of 56) stated they had received ESG (Environment, Social and Corporate Governance)-related queries from investors, of which 10 said that such inquiries are on the increase.

The finding shows how ESG concerns are becoming widespread among global capital market participants. Exchanges provide an important informational and regulatory nexus on ESG issues between companies and the capital markets that serve their financing needs.

Exchanges already participate extensively in ESG initiatives or events, the survey found, with 66 percent responding positively to a question about their past sustainability activities. Large exchanges were more likely to have taken part in an ESG initiative or event. Among the best-known of such sustainability initiatives are The Global Compact Joint Initiative, the Sustainable Stock Exchanges (SSE) initiative of the UN and the WFE’s own Sustainability Working Group.

The survey was recently conducted by the WFE’s Sustainability Working Group (SWG)* and received responses from 56 exchanges — or 93 percent — out of WFE’s 60 member exchanges worldwide in 2014.

“Exchanges, which daily promote transparency in public markets, are eager to help promote the sustainability agenda. Investors are increasingly ESG aware. The WFE stands ready to respond,” WFE CEO Nandini Sukumar said in a statement.

Among other findings from the WFE survey:

• 37 percent of exchanges (21 out of 56) require listed companies to disclose at least some ESG information, whether on a mandatory or voluntary basis, which goes beyond corporate governance criteria. Most exchanges require disclosure on a voluntary basis.
• Exchanges are in charge of gathering and maintaining disclosure records more often than their local regulators.
• At least 22 sustainability- and ESG-related indices have been launched by WFE members, as exchanges respond to growing investor demand. Four new ESG indices were launched in 2014 and five exchanges are seeking to launch an ESG index.
• 19 exchanges said that they either had launched a sustainability product or were about to.

Whether a result of genuine concern for the future and well-being of society or simply becoming more savvy about the risks of continuing business as usual in today’s (changing) climate, many investors have become increasingly vocal about requiring companies to be transparent and proactive about said risks: In the past year, investors representing trillions in assets are calling on companies to disclose everything from climate change-related risks to how they are making good on their zero-deforestation commitments. That, along with CDP’s recent finding that companies that are actively managing and planning for climate change are generating 18 percent higher ROE than peers and 67 percent higher than companies that do not disclose on climate change, hopefully points to a paradigm shift in corporate ESG action and disclosure.

*The WFE’s Sustainability Working Group was set up in March 2014. Based on the premise that exchanges are well-placed to drive enhanced transparency on sustainability and ESG issues and to make recommendations to WFE’s membership. SWG has 50 participants worldwide and represents 21 exchanges. SWG provides a private forum for the frank and forthright exchange of views between exchanges on sustainability topics.