The London Stock Exchange Group is sending companies a guide to ESG reporting (environment, social, governance). Issues that investors are paying ever more attention to.
How do you talk about sustainability to shareholders, employees, the general public and the press? For companies, answering this question is not always straightforward. Until not so long ago, environmental, social and governance (ESG) issues were the preserve of a small number of specialists particularly attuned to the subject. Today these concerns have become a fully-fledged part of the information set that banks, advisers and fund managers analyse as a matter of routine before making any investment decision. All of these parties have a right to be informed in a clear and accurate manner. The London Stock Exchange Group, of which Borsa Italiana is a member, could hardly ignore this, and on 9 February it launched its first guide to voluntary ESG reporting for listed companies.
The guide produced by the Italian and British exchanges opens by highlighting the relevance of environment, social and governance issues to business models and company strategies. Unlike the traditional annual financial statements and all other communications to authorities that represent legal obligations, there are currently no binding standards for reporting on ESG topics. Each company may choose to include them in its annual report, to produce a sustainability report or indeed an integrated report. The guide therefore lists and comments on the most widely used international standards (including those of the Global Reporting Initiative, which have recently been updated) and provides concrete examples.
The aim is to help companies provide clear, comprehensible and high-quality information to investors. This in turn will enable the latter to make more informed decisions, rewarding those who pay close attention to the environment, the local community, legality, workers' rights, gender equality and so on. As things stand today, it cannot be taken for granted that everything runs smoothly. According to research cited in the report, more than a third of companies say they are able to quantify accurately the economic value of their sustainability-related initiatives. Yet only 7 per cent of investors share that view. This means there is a gap to be filled: in some cases investors struggle to access information, while in others investors and companies focus on different issues.
Monitoring your own environmental, social and governance policies, finding quantitative indicators to measure them and communicating all of this externally — someone will certainly object — is a drain on time and energy. That is undeniable. But, the guide notes, it is nothing other than an investment, one that ultimately pays off for any company, large or small. This is borne out by the increasingly encouraging data on sustainable investment. The signatories of the United Nations Principles for Responsible Investment (UN PRI) currently manage in total more than 60 trillion dollars. Among them are virtually all of the most significant institutional investors in companies listed on Borsa Italiana and the London Stock Exchange. Recent research by the Global Sustainable Investment Alliance (GSIA) states that as much as 60 per cent of assets managed by European investors now incorporate sustainability strategies. In other words, responsible finance has gone mainstream. This means that talking about sustainability, stating facts and figures clearly, means attracting capital. Now and over the long term.
The guide has been sent to more than 2,700 listed companies on London Stock Exchange Group markets, which was formed through the merger of the London Stock Exchange and Borsa Italiana. We are talking about a group of companies that, taken together, reach a combined market capitalisation of more than 5 billion pounds. In recent months, the group has worked extensively with market participants to understand the challenges involved in ESG reporting. Stock exchanges around the world are one of the key venues for discussing sustainability in investment: this has been formally recognised by the United Nations, which is behind the Sustainable Stock Exchanges initiative, which is enjoying ever-growing success.