What is ESG?
Environmental, Social & Governance
S
G
Sustainability or ‘ESG’ (Environmental, Social and Corporate Governance) concerns are becoming increasingly widespread among global capital market participants. Such issues are clearly starting to have an important impact on investors’ decisions. Exchanges, situated as they are - at the sharp edge of change due to their critical infrastructure role for the financing of the real economy, can help promote responsible business and investment behaviour and so facilitate sustainable development and transparent ESG policies and practices.
Exchanges in recent years have received a number of questions from investors relating to their sustainability practices. Thirty nine percent (22) of the respondents to the World Federation of Exchanges Sustainability Working Group Survey (SWG Survey) said they had been approach regarding sustainability and ESG issues, with 10 saying that the number of inquiries on these topics has been rising (see sidebar).
Exchanges need to respond to this heightened investor awareness of sustainability issues
by ensuring the stability, fairness and transparency of their markets and at the same time
nurture investor confidence by the provision of information. A number of possible ways have
been suggested through which exchanges can contribute to addressing sustainability and
ESG issues (UNCTAD 2014).
1. Conditional on regional and/or regulatory requirements, exchanges can
encourage the disclosure of ESG information by the companies listed on their
markets, whether on a mandatory or voluntary basis.
2. Exchanges or regulators can directly gather and/or compile ESG metrics
submitted by listed companies.
3. Sustainability-themed financial products can provide incentives to issuers and
create opportunities for capital allocation to ESG leaders or appropriate projects.
4. As companies themselves, individual exchanges should themselves consider
producing a sustainability report.
5. Participation in sustainability-related initiatives and events, relevant engagements
with stakeholders and collaboration with sustainability experts in their markets.
This report sets the scene for the further work which the WFE Sustainability Working Group
(SWG) intends to undertake by examining the extent to which WFE members already
engage with sustainability initiatives or not and what the prospects are for closer involvement
by the exchanges with such projects in the near future.
This report takes into account the diverse economic and regulatory environments in which
exchanges operate and takes into account that a ‘one-size-fits-all’ approach will neither be
possible nor effective. In spite of this, most exchanges are keen on pushing for better ESG
practices in their markets while recognising the importance of protecting these markets from
inappropriate or overly burdensome regulation.
Most of the data and graphs cited in this report have been taken from a recent survey of
WFE member exchanges prepared by the SWG. Selective reference is made to reports and
literature on the issue, although this does not reflect the full range of the literature that now
exists on the topic.
This report will be split into three sections: an introduction and consideration of the
importance of ESG issues for exchanges; an analysis of survey responses and concluding
remarks and potential further steps.
Yes
Increasing Number
Yes
General Inquiries
Yes
Small Number
No