Assessing the Role of Securities Exchanges on Environmental, Social and Governance (ESG) Practice

Abstract

Environmental, Social and Governance (ESG) risks are increasingly becoming issues of concern for investors and regulators. Government, businesses, researchers, non-profit organizations are paying more attention to how their activities are contributing to sustainable development. ESG risks have even more significant impact on financial systems, and as such, banks and financial regulators are playing crucial roles in adopting and promoting ESG practices and related disclosures. Securities exchanges occupy a unique position of influence in that they stand as intermediaries between issuers and investors. The Sustainable Stock Exchange Initiative (SSEI), an organization created by the United Nations to galvanize efforts by securities exchanges towards the SDG, has continued to lead securities exchanges on several ESG initiatives. Some of the initiatives include guiding securities exchanges on how to support companies within their market on responsible business practices and reporting. A good number of securities exchanges globally have now published ESG guidance for their market, created ESG listing rules, developed ESG indexes and facilitated ESG related trainings. Amidst growing attention from securities exchanges on ESG regulations, this research assesses the role played by this financial regulator on ESG reporting practice among publicly listed companies, particularly climate reporting using the Taskforce on Climate and Financial Disclosures (TCFD) recommendations. This research adopts a qualitative approach through content analysis to study all ESG guidance, rules and indexes created by securities exchanges, to substantiate the impact of ESG regulations within capital markets across the world. The study provides answers important questions on the structure of the ESG regulatory landscape across geo-political region, the prevalence of guiding ESG frameworks, progress on climate related disclosures, and how ESG regulations by securities exchanges are supporting national actions towards the SDGs in their host countries. The overall objective of this study is to identify the roles played by securities exchanges in supporting ESG efforts within their markets and recommend news ways to meet the ever-evolving market demands on ESG.