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Our analysis gives rise to three main recommendations.
First, stock exchanges—
and policymakers of all
description
—that are considering implementing a
sustainability disclosure policy would be well-advised
to structure it as a mandatory, prescriptive and broad
instrument. Mandatory policies impose reporting
obligations on affected companies, although the
degree to which policymakers can (or choose to)
impose this characteristic varies. Prescriptive policies
are clear and provide details about the expected
disclosures. Broad policies—those that cover a wide
range of sustainability indicators and offer few carve
outs in terms of company size or industry type—are
desirable because they offer flexibility and cast a
wide reporting net. In order to craft policies that are
prescriptive and broad, policymakers can reference
sustainability reporting standards developed by
transnational standard-setters, such as the Global
Reporting Initiative (GRI). This type of policy
hybridization—public policymakers using privately
developed standards—is increasingly used in the
financial and health & safety industries, and offers
clear benefits in the sustainability reporting field.
Second,
stock exchanges
have hitherto played
a relatively minor role in the development of
sustainability disclosure policy, although their
potential role is recognized to be hugely significant.
By incorporating sustainability disclosure
requirements into their listing standards, stock
exchanges can create a powerful incentive for
companies to measure and publicly disclose
sustainability performance data to the market.
Many stock exchanges have expressed the legitimate
concern that imposing stricter listing requirements
could discourage future listings, which runs central
to their business model. While this perspective is
logically sound, we recommend that stock exchanges
invest the necessary human and financial resources
to fully explore the perceived negative trade-off
between sustainability standards and the listing
propensity of public firms. This could take the form of
interviews with senior management at both existing
and prospective listings. CK Capital uncovered scant
evidence to support this perceived negative trade-off,
and more research in this area is urgently required.
Third, of all the actors that can influence corporate
behaviour through policy, the world’s securities
regulators have to date been the least prolific, which
is perhaps understandable given their historic
mandate. But, like stock exchanges,
securities
regulators
could theoretically play a significant
role by integrating sustainability disclosure into
capital markets requirements. We recommend
that the
International Organization of Securities
Commissions (IOSCO)
set up a roundtable to explore
whether (and how) capital markets rules to facilitate
corporate sustainability disclosure could be in the
long-term interest of its membership.
Additionally, we recommend that the
World
Federation of Exchanges (WFE)
build a forum
that its members could use to share best practices
regarding the integration of sustainability disclosure
standards into listing requirements.
Recommendations
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