The study, Measuring sustainability Disclosure: Ranking the World’s Stock Exchanges 2016, finds that of 4469 large companies analysed, only 47 per cent disclosed GHGs, arguably the most closely tracked sustainability indicator. Furthermore, over the 2010-2014 period, the number of large companies that disclosed GHGs nudged up just 12 points from 33 per cent to 47 per cent despite a number of high-profile policy initiatives aimed at sustainability disclosure in the last few years.

First commissioned by Aviva Plc in 2012 as part of the Sustainable Stock Exchange Initiative, the report tracks corporate disclosure on seven sustainability indicators – payroll, GHGs, energy, water, waste, injury rate and employee turnover. Written by Corporate Knights, it also suggests how such disclosure can be translated into actionable key performance indicators, which might help investors to distinguish companies that are incorporating sustainability into their value creation story.

Steve Waygood, Chief Responsible Investment Officer at Aviva Investors, said:

“We go further than ever in this fifth annual report by looking beyond disclosure and into performance analysis. For each exchange, we assess carbon intensity, fossil fuel reserve intensity and the percentage of listed companies whose businesses involve environmentally-friendly activities, technologies and services versus high-carbon emission activities. This is a significant step forward that will empower investors to increase the integration of sustainability factors into investment decision making.”

Mark Wilson, Group Chief Executive Officer at Aviva, said:

“I urge stock exchanges and regulators to establish a mandatory requirement for the disclosure of environmental, social and governance information, introduced on a “comply or explain” basis. This will help establish and maintain clear expectations, while allowing companies the flexibility they need. I also call again for the International Organization of Securities Commissions, which sets standards for the securities sector as a whole, to develop globally consistent listing rules.”

The report includes the following further recommendations:

• Policymakers and securities regulators in both developed and emerging economies are encouraged to study the possibility of influencing investment returns based on the corporate sustainability of the securities issuer. For instance, dividends of issuers in the same sector could be taxed more highly or lowly depending on sustainability ratings.
• The more highly ranked stock exchanges have at least one mandatory, prescriptive requirement to regulate sustainability disclosure. It is recommended other jurisdictions consider this approach or convert existing voluntary policies into mandatory ones.
• Stock exchanges are encouraged to track and publicly report on listed entities that are engaging in sustainability disclosure and those that are not to put pressure on laggards.

Exchanges rising and falling

Euronext Amsterdam was the world’s best performing exchange when it came to disclosure of sustainability metrics. Over 50 per cent of its large listings disclosed all four environmental metrics – GHGs, energy, water and waste. Stock exchanges in European developed countries dominated the top 10 rankings, with the exception of the Australian Securities Exchange and the Johannesburg Stock Exchange.

The London Stock Exchange, which placed eighth in the ranking, saw 95 per cent of its large companies disclose GHGs. This makes it the home of the largest proportion of GHGs among large stock exchanges (more than 100 companies with a market capitalization of at least $2 billion). The UK’s 2013 update of the Companies Act Made GHG disclosure mandatory for listed UK incorporated companies.

There was a general absence of progress among stock exchanges in the lower half of the ranking. Some 21 stock exchanges have been placed in the bottom half at least three consecutive times and remain there this year. Among emerging economies, The Stock Exchange of Thailand and Bursa Malaysia climbed sharply in the last two years, landing in 13^th place and 17^th place, compared to 27^th and 23^rd place in 2014.

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Last year, G20 finance ministers asked the Financial Stability Board (FSB) to consider how the financial sector could take account of the risks climate change poses to our financial system. The upshot is an FSB climate task force report due later this year that will recommend consistent climate-related financial risk disclosures. The recommendations will penetrate the financial mainstream standard-setters in a way that previous efforts by NGOs could not. The G20’s Green Finance Study Group, created under China’s presidency, provides a valuable forum for such recommendations to be taken up.

Climate disclosure is just one part of sustainability disclosure, but it is a good starting point because no other issue is as important for both the health of the financial system and future of our civilization.

As policy-makers grapple with how to improve disclosure on these vital issues, this year’s Measuring Sustainability Disclosure: Ranking the World’s Stock Exchanges report offers two essential insights.

Number one: Mandatory and prescriptive sustainability disclosure requirements work. Countries that have them lead; countries that don’t lag. This may seem like an obvious proposition, but when we first started measuring the state of sustainability disclosure five years ago, the conventional wisdom was that the best way forward was to issue principles based guidance. We now have evidence that the “report what you feel you like” approach in the absence of minimum mandatory standards is not a recipe for useful disclosures. With the exception of Switzerland (which is affected by its European context), all of the top 10 exchanges are domiciled in countries with mandatory sustainability disclosure requirements, and the converse holds for the bottom 10 exchanges (with the exception of the Shenzhen Stock Exchange, likely due to enforcement issues).

Number two: Corporate sustainability disclosure is not keeping up with the changing world. Much progress has been made improving sustainability disclosure over the past 10 years (most notably at the stock exchange level by the Stock Exchange of Thailand, Bolsa Colombia, Shanghai Stock Exchange and Nasdaq), but this progress has significantly tapered off over the past five years. Despite the landmark Paris climate deal, the majority of large companies still do not disclose any greenhouse gas emissions data. In fact the only metric tracked in this report that is disclosed by the majority of large companies is payroll, which by no coincidence is covered by International Financial Reporting Standards (IFRS).

Bill Gates remarked that, “Most people overestimate what they can do in one year and underestimate what they can do in 10 years.” As the map of corporate sustainability disclosure takes shape across the world, this report provides a useful window into the state of progress. Over the past five years, it has been heartening to see a gathering appreciation that sustainability reporting is an essential precondition to safeguarding our most cherished assets.

The task for the next five years is to take a lesson from the old joke about the drunk who lost his keys:

A policeman questions a drunk man searching for something under a street light. The drunk says he has lost his keys, and the policeman joins in the search. After searching for a few minutes, the policeman asks whether the drunk is sure he lost them here, and the drunk replies no, that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, “This is where the light is.”

Therein lies our challenge. Investors and insurers decide how to allocate capital and price premiums based only on available information. But right now, much of the information necessary to assess critical mega-risks, such as the transition and litigation risks posed by climate change, remains in the dark. Accounting standards-setting bodies are in a unique position to install street lamps around these risk-relevant factors.

Only with the right information can investors and insurers fulfill their critical role as we transition to a sustainable economy. Let’s make sure their path is well lit.

Click here to go back to the report landing page.

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