Sustainable Exchanges Conference by UN Principles for Responsible Investment

Author Name: 
James Gifford

Exchanges taking up the ESG agenda

As the UN-backed Principles for Responsible Investment (PRI) continues to see tremendous growth in signatories and business commitment, there is increasing interest expressed by investors in the role of regulators and quasi-regulators in encouraging higher standards of corporate conduct and transparency. To explore how exchanges can contribute, the PRI Initiative, along with the UN Global Compact and UNCTAD, are convening a meeting on Sustainable Stock Exchanges at UN Headquarters in New York on 2 November.

The PRI is the largest initiative focused on mainstreaming the consideration of environmental, social and corporate governance (ESG) issues within investment decision-making. The Initiative has 560 signatories worldwide who together manage $18 trillion in assets, which equals some 15 per cent of global capital markets.

The Principles are a set of aspirational guidelines for institutional investors on integrating ESG issues into investment decisions and ownership practices. They were drafted by a group of the world’s largest institutional investors and supported by a 70-person, multi-stakeholder group of experts from the investment industry, intergovernmental and governmental organizations, civil society and academia. The drafting process was coordinated by the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact. The Principles were launched in April 2006 at the New York Stock Exchange by the former UN Secretary-General, Kofi Annan.

In an effort to enhance ESG behaviours and disclosure by companies, a number of PRI signatories are asking how exchanges can assist them in promoting transparency and good corporate practice. This is the background to the high-level dialogue among exchanges, investors, and regulators we hope to guide in November.

The event at the UN headquarters will explore how these market players can work together to enhance corporate transparency, and ultimately performance, on ESG issues, and so encourage responsible, long-term approaches to investment. Leading PRI investors wish to look into various ways exchanges can promote good corporate practice through disclosure requirements and establishing ESG indices. Such moves could benefit exchanges through enhancing the reputation of markets and the investability of the companies traded on them.

Investors themselves are moving ahead to promote greater corporate transparency. A recent PRI survey shows that the majority of PRI signatories are actively seeking ESG disclosure from their investee companies. They are asking them to adhere to relevant norms and international codes of conduct that often involve transparency commitments, pressing for ESG disclosures to be included in annual reports, and supporting shareholder initiatives or resolutions promoting ESG disclosure. Through the PRI Engagement Clearinghouse, a private intranet, these institutional investors are able to pool their resources and collaborate on a global scale, transforming one voice into the voice of many.

For example, in October 2008, a group of 52 signatories, representing US$ 4.4 trillion in assets, launched an initiative to call on almost 9,000 listed companies in the MSCI World, FTSE All-World and IFC Emerging Markets Indices to join the UN Global Compact, a set of 10 principles of corporate responsibility. Other ESG reporting frameworks often used by PRI signatories include the Global Reporting Initiative, the Carbon Disclosure Project and the Extractive Industries Transparency Initiative. The PRI’s annual assessment of signatory progress shows that about 90% of signatories had dialogue with developed-market companies on their ESG reporting.

Transparency and disclosure is all the more important in times of crisis and economic uncertainty, as it is the foundation of investor confidence. The more transparent a company – including across a broad range of ESG issues – the more likely it is that they will invest.

The crisis has not led to any reduction in interest in this agenda. Between October 2008 and May 2009, more than 160 new institutions signed the PRI, representing $5 trillion in assets.

Given the current strength and support behind the PRI, an engagement with exchanges should facilitate the mainstreaming of ESG issues further, and promote responsible markets.

James Gifford

Executive Director

Principles for Responsible Investment

An investor initiative in partnership with UNEP FI and the UN Global Compact


About James Gifford

James Gifford is Executive Director of the PRI and has been guiding the initiative since its inception in November 2003. He has a PhD from the Faculty of Economics and Business at the University of Sydney on the effectiveness of shareholder engagement in improving corporate environmental, social and corporate governance performance. He was a member of the Global Reporting Initiative Working Group on environmental indicators for the finance sector. He has a background in IT and environmental protection. James has degrees in Commerce and Law from the University of Queensland, and a Master's of Environment Management from the University of New South Wales. He is a board member of the Melbourne-based Centre for Sustainability Leadership.