EIRIS researchers suggest exchanges work with regulator on ESG listing criteria
High costs, limited returns and stiff competition may be discouraging the world’s stock exchanges from carrying out sustainability-related measures such as the creation of indices based on SRI, according to a new study.
‘Sustainable indices are a key initiative for many exchanges,’ notes a study from the Ethical Investment Research Service (EIRIS). But ‘they may face challenges when implementing these initiatives. One challenge has been the financial investment required and the return available from sustainability initiatives.’
The study, based on interviews with 11 stock exchanges around the world, concludes that stock exchanges need to engage more with companies to convince them of the advantages of sustainability indices, better publicize recent research that shows a link between sustainability and long-term financial performance, and work with investors to identify the sustainability-related products and services that would benefit them most.
The research, which includes input from NASDAQ, the NYSE, the Johannesburg Stock Exchange and other exchanges from Mexico, Colombia, Turkey, Brazil, Canada and elsewhere, shows listing criteria based on sustainability are harder to implement in countries with more than one exchange.
‘Our market is more competitive, the fight for listings is perhaps more fierce for us than it is for [the Johannesburg Stock Exchange and Brazil’s BM&F Bovespa],’ NASDAQ told the EIRIS researchers. ‘So we’re a little more reticent to jump in front of this by ourselves, which is why we think it’s essential to have the other exchanges participate in the effort.’
NASDAQ also told EIRIS the drive toward higher ESG principles should be better supported by regulators, which have the power to oblige all stock exchanges to comply.
‘We feel there’s been a lack of activity from that side of the spectrum,’ EIRIS reports NASDAQ as saying. ‘[The regulators] are the ones that are probably best suited to make those kind of analyses, and they certainly have the guidance and expertise to do so, but for one reason or another it hasn’t happened.’
EIRIS recommends exchanges seek to work with national regulators to further develop listing rules based on ESG principles. It also recommends exchanges explore ways of working together to advance sustainability initiatives, engage with civil society on the subject and co-operate with international movements such as the Sustainable Stock Exchanges Initiative or the World Federation of Exchanges.
