Dutch Stock Exchanges tops ranking on sustainability reporting

Despite tougher regulations and the growing relevance of "sustainability" as an investment theme, the breadth of sustainability reporting on stock exchanges globally has fallen since its peak in 2008, according to a new report commissioned by Aviva Investors. In a ranking of the world's composite stock exchanges by overall sustainability disclosure, the Netherlands comes out on top, with Denmark (2), Finland (3) Spain (4) and South Africa (5) also in the top five.

‘Trends in Sustainability Disclosure: Benchmarking the World’s Composite Stock Exchanges’, a report produced in partnership with CK Capital, reveals that while a number of European stock exchanges reflect a high level of integrated sustainability reporting from constituents, only 52 companies out of 4,001 mid large and mega caps around the world engaged in ‘complete’ first generation sustainability disclosure in 2010.

While the majority of the world’s mid, large and mega-caps engage in some form of first generation sustainability reporting, the report shows that the proportion of companies voluntarily disclosing each of the first generation indicators is slowing.

Steve Waygood, Chief Responsible Investment Officer at Aviva Investors, said: “Investors are increasingly demanding sustainability information from companies to inform their broader decision making, deepen the quality of market information available and ultimately the quality of our capital markets, so this decline is cause for concern.

“Our study shows a clear divergence across exchanges and sectors on the level of disclosure on sustainability issues and growing evidence of a slowdown in the uptake of sustainability reporting practices. This reflects the lack of a co-ordinated reporting framework.

“We see a real opportunity for policymakers to step in and define a common set of sustainability indicators. The Corporate Sustainability Reporting Coalition launched last month, which represents investors with assets under management of approximately US$2 trillion, is urging all nations at Rio+20 to commit to develop an international policy framework. This framework should look to foster the development of national measures requiring, on a report or explain basis, the integration of material sustainability issues within the corporate reporting cycle of all listed and large private companies.”

Doug Morrow, Vice President of Research at CK Capital and lead author of the report, said: “This study shows that while the majority of the world’s largest companies by market capitalisation report some first generation sustainability indicators, the actionability of this data for investors and other stakeholders is constrained by a lack of completeness, standardisation and timeliness.”

Key findings from the report
The report ranks the world’s composite stock exchanges* according to the sustainability disclosure practices of their listed companies. The report investigates disclosure rates and timeliness for a range of seven “first generation” sustainability indicators: energy, greenhouse gas (GHG) emissions, water, waste, lost time injury rate, payroll costs and employee turnover.

In a ranking of the world’s composite stock exchanges by overall sustainability disclosure, the Netherlands comes out on top, with Denmark (2), Finland (3) Spain (4) and South Africa (5) also in the top five. The Nordic countries rank particularly well with four countries appearing in the top ten. The two emerging market exchanges that score well are South Africa (5) and Brazil (9)**.

Certain countries are also excelling in disclosure around particular “first generation” indicators with:

Finland scoring the highest disclosure rate on four of the seven indicators: payroll data (91%), waste (83%), energy (78%) and GHG emissions (52%)
South Africa has the fastest growing disclosure rate, ranking first in five of the seven indicators: water, waste, GHG emissions, employee turnover and lost time injury rate
Companies trading in Denmark are the world’s most timely sustainability reporters; 57% of all large companies on the Danish composite with a Q4 2011 financial year end had published 2011 sustainability data by 1 May 2012
Overall, financial companies had the lowest sustainability disclosure of all industries, ranking last on five of the seven indicators; energy, GHG emissions, water consumption, waste and lost time injury rate
Utility companies came out on top in most indicators and ranked first on disclosure around GHG emissions, water consumption, waste and employee turnover
Regionally, Europe and South East Asia scored highest as being the quickest to market with sustainability data
Mr Waygood concluded: “Markets are driven by information. If the information the market receives is short term, then these characteristics will define the way these markets operate. It is time for regulators to act.”

* The unit of analysis for the report is a ‘composite stock exchange’, which is an aggregation of all stock exchanges within a single country. Any reference to a country is a reference to that country’s composite exchange.

** See page 41 figure 22 within the full report for a ranking of the world’s composite stock exchanges by overall sustainability disclosure.

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