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By Roger Aitken — The London Stock Exchange Group (LSEG) has issued guidance through its Global Sustainable Investment Centre that sets out recommendations for good practice in Environmental, Social and Governance (ESG) reporting. It comes in response to demands from investors for a “more consistent” approach in such reporting that now forms a core part of the investment decision process.
The LSEG’s 60-page guide seeks to help companies gain a clear understanding of what ESG information investors would like to see provided by companies.
Over the past year, the exchange has spoken to companies of all sizes listed on the London market and Borsa Italiana, while subsidiary FTSE Russell engaged with asset owners and asset managers to understand key challenges facing the industry in relation to ESG reporting.
The guide comes on the back of the sustainable investment area having changed dramatically and the rise of ESG investing globally, with consideration of ESG factors today viewed as standard for most large institutional investors.
Evidencing the trend over 1,500 signatories with in excess of US$60 trillion (trn) of assets under management (AUM) have signed the United Nations backed Principles for Responsible Investment (PRI), a doubling of the assets pledged tom PRI since 2011.
Over a third of professionally managed assets globally - equating to more than US$20trn AUM - incorporate ESG approaches, according to the Global Sustainable Investment Alliance.
The exchange’s ESG guidance further builds on market standards such as the Basel-based Financial Stability Board’s Task Force on Climate-Related Financial Disclosures report and the UN Sustainable Development Goals.
Raffaele Jerusalmi, LSEG’s Director of Capital Markets and Borsa Italiana CEO, commenting said: “This guide is specifically focused on improving the dialogue and information flows between issuers and investors, which will in turn benefit the market as a whole, as good practice in ESG becomes more and more relevant in the investment chain”.
Martin Skancke, board chair at the PRI, in calling on other exchange groups to follow the LSEG’s leadership stated: “Institutional investors need investment-grade ESG data to accurately inform their decision making and asset allocation. Exchange operators have a major role to play in supporting enhanced data disclosure”.
The report identifies eight priorities for ESG reporting, namely: 1. Strategic relevance 2. Investor materiality 3. Investment-grade data 4. Global frameworks 5. Reporting formats 6. Regulation and investor communication 7. Green Revenue reporting and, 8. Debt finance.
