While Nasdaq Helsinki topped the sustainability disclosure performance ranking for the second year in a row, over the past five years, corporate disclosure rates around the globe for greenhouse gases (GHGs), energy, water, waste, payroll and injuries have flatlined.

The report, ““Measuring Sustainability Disclosure: Ranking the World’s Stock Exchanges 2019,”,” finds that of 6,261 large companies analyzed, 85% disclosed payroll, followed by greenhouse gases (41%), energy (33%), water (28%), waste (27%), injuries (24%) and employee turnover (22%).

GHG disclosure spiked in 2015 with 2,609 companies (41.7%) disclosing, falling to 2,583 (41.3%) in 2017. Given investors’ surging interest in sustainability data and a host of significant ESG data-disclosure initiatives, including the Task Force on Climate-related Financial Disclosures and the Sustainability Accounting Standards Board, it seems counterintuitive that companies are not disclosing more ESG data.

However, the change in economy make-up, which has become more tech-heavy over the past economic cycle (tech companies tend to disclose less ESG information), and the increased scrutiny and accountability around ESG data, including litigation risks, has caused some companies to pull back on ESG transparency.

“The reporting gap constitutes a glaring governance failure that requires urgent redress, especially given the surging investor interest in sustainability performance metrics,” says Corporate Knights CEO Toby Heaps.

Adds Heaps, “In the short-term, exchanges and regulators should set a mandatory requirement for climate disclosure (building on the recommendations in the Financial Stability Report of the Task Force on Climate-related Financial Disclosures) on a “comply or explain” basis, which can help maintain clear expectations while allowing companies the flexibility they need.”

First commissioned by Aviva Plc in 2012, the annual report tracks corporate disclosure on seven sustainability indicators. It 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 stories.

Maurice Tulloch, Chief Executive at Aviva says, “The entire economy needs to change quickly for there to be any hope of achieving the ambitions set by the Paris Agreement. In part this depends on everyone having access to the right information about how individual companies are contributing. Global stock exchanges are central to this.”

Which stock exchanges are leading on disclosure?

Nasdaq Helsinki topped the disclosure performance ranking for the second year in a row, with excellent disclosure rates across all indicators. Among environmental indicators, the Finnish companies did especially well in disclosing energy use and GHG emissions, which were disclosed by 32 of the 36 companies evaluated.

BME Spanish stock exchanges and Euronext Paris kept their places in the top five, with Euronext Lisbon and Johannesburg Stock Exchange emerging as newcomers to the top five.

The top 10 included three exchanges from emerging markets: Bolsa de Varoles de Colombia, the Stock Exchange of Thailand (SET) and the Johannesburg Stock Exchange (JSE). Their presence shows that sustainability reporting is taking hold in emerging countries.

All of the top 10 ranked stock exchanges have mandatory, prescriptive requirements for sustainability disclosure.

Disclosure increased significantly among issuers on the Argentine exchange, especially for employee turnover, energy, waste and GHGs. The Stock Exchange of Hong Kong went from a GHG disclosure rate of 18% in 2013 to 42% in 2017.

The issuers of Nasdaq Copenhagen were the fastest disclosers, with an average lag of only 73 days between the end of the fiscal year and the release of annual sustainability data: 66% of the companies in the exchange had disclosed their sustainability data within five months of year-end.

The issuers of Nasdaq Stockholm and the Stock Exchange of Thailand also performed well in this metric, with an average timeliness of 98 and 105 days, respectively, compared to the research universe average of 164 days.

Time for regulators to step in?

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The analysis of more than 4,300 companies listed on 35 stock exchanges provides a snapshot of disclosure practices for seven sustainability-related indicators including greenhouse gases (GHGs), payroll and water use.

The results found comparatively good disclosure practices at a number of exchanges, with Nasdaq Helsinki topping the ranking for overall disclosure rates, the Hong Kong Stock Exchange for growth in disclosure, and Nasdaq Copenhagen for timeliness of disclosure. While Europe has often been seen as the leader in sustainability reporting, this analysis indicates that sustainability disclosure is picking up in areas outside of Europe: with two emerging markets (Johannesburg Stock Exchange and Stock Exchange of Thailand) in the top 10 for overall disclosure rates and four of the top 10 by disclosure growth rate were from emerging markets.

A common thread among many of the top exchanges for disclosure, and particularly for GHG disclosure, is the presence of regulation regarding one or more indicator evaluated. In all of the top 10 exchanges, in both developed and emerging markets, some form of regulation mandates disclosure of one or more of the indicators evaluated from all, or a portion of, listed companies.

GHG disclosure was the most reported indicator, which also may be related to regulatory action in certain jurisdictions such as France’s Grenelle II Law and the United Kingdom’s 2013 update to the UK Companies Act. These two pieces of regulation have elements that make them particularly effective: they are mandatory, specific in terms of which disclosures are required, and they are applicable to a majority of listed companies in their respective jurisdictions.

While high growth in disclosure rates has been seen in a number of markets, this analysis highlights that much more is still needed. Despite the Paris Agreement, no growth was seen in GHG disclosure between the 2015 and 2016 reporting periods, and more than half of the companies evaluated provide no data on GHG emissions.

The London Stock Exchange, which placed 12^th overall and was called out for achieving the highest disclosure rate for GHGs with a near-perfect 97% disclosure rate for GHGs. The strong display of performance on GHG disclosure can in part be attributed to the 2013 update to the UK Companies Act of 2006, which requires large U.K.-incorporated companies listed on the London Stock Exchange main market, a European Economic Area market, Nasdaq or NYSE to report their GHGs. This instrument remains one of the most successful instruments in spurring environmental and social performance disclosures.

Across the 35 stock exchanges assessed the most widely disclosed indicator was GHGs, disclosed by 48% of large companies with more than US$1 billion in annual revenue, followed by water (47% and energy (41%).

* Could not be assessed due to a lack of observations

**These metrics are for illustrative purposes and did not factor into the rank in 2018.

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The study, Measuring Sustainability Disclosure: Ranking the World’s Stock Exchanges 2017, finds that of 6,441 large companies analysed, 78% disclosed payroll followed by greenhouse gases (43%) energy (40%), water (38%), waste (29%), injuries (24%) and employee turnover (15%).  Over the past five years, corporate disclosure rates for GHGs, energy and waste and injuries have flat-lined while water and employee disclosure both improved at an annualized clip of 10%.

First commissioned by Aviva Plc in 2012 as part of the Sustainable Stock Exchange Initiative, the report tracks corporate disclosure on seven sustainability indicators. 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.

Toby Heaps, Chief Executive Officer at Corporate Knights, said:

“While it never made sense that investors could succeed in a society or planet that fails, emerging policy and technological drivers have advanced market fundamentals such that investing in a better world now makes sense and makes dollars. Unfortunately, the reporting gap is hobbling market feedback loops and gumming up the efficient allocation of capital. This constitutes a glaring governance failure that requires urgent redress.”

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

“Corporate Knights has been among the institutional leaders on the Sustainable Stock Exchange initiative since the outset. This report shows that all the hard work has paid off. We now enjoy much better data on environmental, social and governance issues than we did at the outset of this benchmarking work six years ago. However, while the trend is positive, the underlying rate of growth is not. At this rate, we will need to wait another generation before we have anything even approaching complete and comparable global data, even in the area of climate emissions, employee turnover and health and safety data. It is the role of IOSCO to correct market failures in this area. I believe they are currently reneging on their duty in this area. The time has come for them to step up.”

The report includes the following recommendation:

In the short-term, exchanges and regulators should set a mandatory requirement for climate disclosure (building on the recommendations in the recent Financial Stability Report report of the Taskforce on Climate-related Financial Disclosures) on a “comply or explain” basis, which can help maintain clear expectations while allowing companies the flexibility they need.

Top exchanges

The Helsinki Stock Exchange 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, Johannesburg Stock Exchange, and Stock Exchange of Thailand, which progressed from 40th place in the 2013 rankings to 10th place in this year’s ranking. The combination of voluntary reporting guidelines issued by the stock exchange in 2012 followed by mandatory disclosure requirements by the securities regulator in 2014 appears to have contributed to the continuous rise of the Stock Exchange of Thailand in the ranking.

The London Stock Exchange, which placed fourth in the ranking (up from 8th the previous year), saw 91 per cent of its large companies disclose GHGs, making it the exchange with the highest percentage of GHG disclosure among all stock exchanges surveyed. The UK’s 2013 update of the Companies Act Made GHG disclosure mandatory for listed UK incorporated companies. All of the top ten ranked stock exchanges have mandatory, prescriptive requirements for sustainability disclosure.

The Copenhagen Stock Exchange was found to be the exchange with the highest proportion of revenue from environmentally sustainable sources, at 4.4%, while Oil-rich Norway’s Oslo Stock Exchange was found to be the exchange with the highest percentage of corporate revenue from brown sources – oil & gas, thermal coal and electric utilities that use coal for electricity generation (44.5%) – followed closely by the Moscow Exchange at 43.9%. The Warsaw Stock Exchange is the most carbon-intensive stock exchange of the 55 exchanges studied, with 1,674 metric tons of GHGs per million of revenue in U.S. dollars in 2015, while the tech-heavy Nasdaq was found to be the one with the lowest carbon intensity at 76 metric tons of GHGs per million of revenue.

For more information, contact: Tara Wilkie +1 (416) 203-4674, sse [@] corporateknights.com

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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.

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This report is the fourth instalment of an annual series that tracks the extent to which the world’s publicly traded companies are disclosing the seven basic or “first-generation” sustainability indicators, namely: employee turnover, energy, greenhouse gas emissions (GHGs), injury rate, payroll, waste and water.

The analysis is conducted at the level of individual stock exchanges (45 in total) and is based on 2013 disclosure rates.

Two interesting data points emerged from the report. The study found that although the number of large companies disclosing basic sustainability indicators is increasing, the rate of uptake is flatlining. For example, the rate of increase in GHG reporting over the period 2009–2010 by the world’s large companies stood at 17%. The corresponding figure for the period 2012–2013 has slowed by two-thirds, down to only 6%. There is a similar slowdown in reporting occurring on the other sustainability indicators.

Another notable development concerns disclosure incentives. All 10 top-ranked exchanges are located in countries with sustainability disclosure policies that are mandatory, prescriptive and broad. One example was the London Stock Exchange, which jumped four places to fifth overall on the back of strong improvements on GHG disclosure, following the discussion to the 2013 update of the UK Companies Act 2006, requiring listed UK-incorporated companies to disclose GHGs.

The report’s recommendations center around this point, urging policy-makers, investors, stock exchanges and securities regulators around the world to disclose sustainability information in a timely manner.

“This is the fourth of these reports – and it means we can begin to see which combinations of regulations and voluntary incentives effectively promote disclosure,” explains Aviva Group CEO Mark Wilson in the report. “Although I am a supporter of market forces and lean regulation, it is clear that regulation in this particular area leads to more disclosure than voluntary mechanisms.”

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Current business-as-usual projections put us on track for a world of deep climate disruption with grave economic implications for long-term investors. There is nothing inevitable about this future, especially if we can harness the $225 trillion firepower of capital markets to finance new energy, industrial and transport systems to de-link carbon from prosperity. But capital markets are largely missing in action not only because of mispriced externalities but also because regulators have left investors in the dark with respect to information about corporate carbon emissions.

How can an investor – like the $197 billion Dutch pension PFZW which has pledged to reduce its listed company carbon intensity by 50% by 2020 – decarbonize their portfolio when the majority of large companies in all sectors do not report their carbon emissions? The answer is they have to guess, filling in data gaps with estimates that are often less than reliable. Not only does this impede investor efforts to reduce their carbon risk exposure, but it also disrupts the investor-company feedback loop, which stalls progress on shifting corporate cap-ex and executive pay structures to be aligned with the low carbon future desired by most long-term investors.

Whether carbon emissions or earnings numbers, timely, comparable and reliable data does not grow on trees; it is the result of precise regulatory requirements. This year’s report, Measuring Sustainability Disclosure: Ranking the World’s Stock Exchanges once again underlines this point. Each of the top-10 ranked stock exchanges has one thing in common: they are all located in jurisdictions with mandatory, prescriptive and broad sustainability disclosure policies—what we refer to as “super policies.” The London Stock Exchange is a case in point. In 2012 at the Rio+20 conference at which the first version of this report was launched, the United Kingdom government announced it would be the first country in the world to make it compulsory for listed companies to include emissions data in annual reports. Today, fully 100% of the FTSE 100 disclose their carbon emissions.

Carbon disclosure is not the a-to-z of sustainability data, but it is the better part of the ABC’s. It is the number one sustainability metric judged by clout of investors who want it disclosed ($95 trillion-backed CDP), use it in portfolio wide footprinting ($4.6 trillion-backed backed Montreal Carbon Pledge), or factor it into optimization strategies ($45 billion-backed Portfolio Decarbonization Coalition).

The voluntary mechanisms have served their purpose. There is now broad market awareness around sustainability reporting while voluntary disclosure has flatlined. Regulators must now step in and require mandatory disclosure to close the gap. There is no better place to start than carbon emissions.

Capitalism has proven resilient because of its ability to adapt. This year`s report is a clarion call to stock exchanges and finance ministers around the world to work swiftly with regulators to ensure that investors are no longer denied the information required to decarbonize their portfolios and the planet.

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