‘Investor ambivalence’ a drag on ESG performance

Global stock exchanges are the leaders in promoting CSR performance and reporting but remain restricted by regulation and investor ambivalence, according to new research from Aviva Investors in preparation for Rio+20.

The study, which follows talks with 30 stock exchanges worldwide, finds that the proportion of bourses acknowledging their responsibility to encourage CSR has grown since an initial report in 2010 to 76% now. The proportion of exchanges agreeing that strong sustainability requirements for listed companies made business sense increased dramatically, up to 57% from 38% two years ago.

In what may be a trend, the vast majority of exchanges (86%) said they either already had or intended soon to introduce sustainability indices of their own.

However, Aviva says that, even though some stock exchanges understand and support the need for greater corporate action on sustainability, further stakeholder support is necessary to fuel the trend globally.

Four in five exchanges say they would welcome a global approach to consistent non-financial reporting, and Aviva suggests the increasingly global and competitive market in which exchanges operate demands a common framework built on a global level.

At a national level, the main problem for stock exchanges is that they do not feel CSR measures are within their legal remit. In a third of markets, the promotion of sustainability disclosure was considered to be entirely in the duty  of regulators and legislators.

More surprising, however, is the low input bourses feel they receive from investors.

While the exchanges themselves are generally supportive of sustainability efforts, around half said ‘ambivalence’ from institutional investors has stunted the growth of mainstream sustainable markets.

Aviva recommends that investors conduct a more robust dialogue with regulators and policymakers as well as the exchanges, define more clearly the ESG factors they consider, and more demonstrably punish companies on ESG factors through their investment decisions.

The report is based on responses by members of Sustainable Stock Exchanges, which will hold a summit to explore how the world’s bourses can work with investors, regulators and companies at the UN’s Rio+20 event in June.

Aviva Investors’ chief executive Paul Abberley said: “Markets are driven by information. If the information they receive is short-term and thin, then these characteristics will define our markets.

“As a founder member of the UN-backed Principles for Responsible Investment, we have long believed that consideration of ESG issues are relevant to firm-level performance.

“There remains, however, a significant data gap. We believe that the world now needs to move from the innovative and pioneering approach of a minority of companies to sustainability reporting being a true global mainstream practice for all large or listed companies.”