Benchmarking the world’s stock exchanges

Which of the world’s stock exchanges are home to the world’s most advanced sustainability reporters, and, perhaps more significantly, why? A new study by CK Capital, the investment research arm of Corporate Knights Inc, based in Toronto, Canada, suggests that stock exchange regulatory requirements that are mandatory, prescriptive and broad are most strongly correlated with sustainability disclosure excellence.

T he reporting practices of publicly traded companies have evolved dramatically over the past 20 years. While the foundation of the balance sheet, income statement and cash flow statement remains intact, today’s listed companies supplement these core documents with a diverse body of information and data covering areas including corporate policy, strategic plans, business targets and accounting policy, as well as forward-looking information.

The broadening scope of corporate disclosure is being driven to a large extent by tightening regulatory requirements. But it is also a result of the growing demand among investors for more comprehensive firm-level information. It is against this backdrop that the recent explosion in corporate sustainability reporting should be viewed.

Sustainability reporting – loosely defined as the practice of providing information about a company’s environmental, social Highlights and governance risks, opportunities and management capabilities – is the latest innovation in this trend towards expanding corporate reporting and transparency.

Sustainability reporting may not always move the market, but it can provide a fascinating window into corporate strategy and firm behaviour. How companies perform on such indicators as annual greenhouse gas emissions over revenue, CEO compensation over average employee salary or lost time injury rate can provide rare glimpses into their strategy for managing costs, their approach to motivating employees and their operational effectiveness.

It is for these reasons and more that Corporate Knights sought to analyse the general state of corporate sustainability reporting with our recent report, Trends in Sustainability Disclosure: Benchmarking the World’s Stock Exchanges. Released in October 2013, the report was the second in the series, following up on our inaugural study that was released in June 2012 at the United Nations Rio + 20 conference.

The first objective of the report was to figure out which stock exchanges were home to the world’s most advanced sustainability reporters. The second aim was to determine which types of policies were correlated with sustainability disclosure excellence.

Stock exchanges were ranked based on the extent to which their large listings had disclosed what CK Capital refers to as the seven ‘first generation’ sustainability indicators: employee turnover, energy use, greenhouse gas (GHG) emissions, lost-time injury rate, payroll, waste produced and water consumption (see Figure 1 opposite).


1. The global picture

European exchanges dominate the top rankings in our latest Trends in Sustainability Disclosure report, but emerging markets exchanges are rapidly closing the ‘disclosure gap’.

The BME Spanish exchange, based in Spain, received top billing in this year’s ranking, moving up from fourth position in last year’s assessment. The top 10 were rounded out by the Helsinki Stock Exchange, the Tokyo Stock Exchange, the Oslo Stock Exchange, the Johannesburg Stock Exchange, the Euronext Paris, the Copenhagen Stock Exchange, the SIX Swiss Exchange, the Athens Stock Exchange and the Euronext Amsterdam.

It is no surprise to see the strong performance of European stock exchanges. Corporate sustainability reporting has long been encouraged across Europe, with the recent Grenelle II legislation in France the latest in a long line of progressive European disclosure policy.

But the real story is the rapid progress of emerging markets-based stock exchanges. While only one emerging markets-based exchange cracked the top 10 in this year’s ranking – the Johannesburg Stock Exchange – we find evidence that a great process of ‘catch up’ is taking place in quantitative sustainability reporting practices across the emerging markets. Our analysis indicates that, as a whole, emerging market stock exchanges are on track to overtake those based in developed markets by 2015 in terms of the proportion of their large listings that disclose the seven first generation sustainability indicators.

Sustainability disclosure excellence among emerging markets firms is typified by the Brazilian mining giant Vale SA, India’s Tata Motors and Digi, a Malaysian telecommunications company. These firms are three of only 117 large companies globally that currently offer their investors complete ‘first generation’ sustainability reporting.

While this ‘catch up’ process is the result of many different factors, one of the primary drivers has been an influx of reporting mechanisms implemented by stock exchanges and other regulatory actors. Celebrated examples include the decision of the Securities and Exchange Board of India to mandate the inclusion of Business Responsibility Reports in the annual reports of India’s 100 largest listed entities based on market capitalisation.

2. The implications for regulators

Implementing effective sustainability disclosure policies is not an easy task for policymakers. Sustainability data often falls into a ‘grey zone’ insofar as financial materiality is concerned. This means that many companies can legally circumvent well-intentioned disclosure policies – even, in some cases, mandatory disclosure policies put forward by securities regulators – by invoking the ‘materiality’ principle.

Stock exchanges face an additional burden. Unlike governments and securities regulators, they increasingly operate as for-profit companies, and are sometimes owned by listed entities. Many stock exchanges have expressed the legitimate concern that implementing sustainability reporting requirements into their listed standards could discourage future listings.

Perhaps most importantly, a complex, almost overwhelming, set of tools is at the policymaker’s disposal. Permutations include voluntary, sector-specific disclosure policies, mandatory ‘all inclusive’ policies, the increasingly referenced ‘comply or explain’ model, and policies that use enforcement mechanisms versus those that do not. While good work is being done to help policymakers identify best practices, there is a dearth of quantitative evidence to help the global policymakers in this regard.

It is this ‘gap’ that we elected to fill with the policy analysis section of this year’s study. While based on an admittedly parsimonious framework, our analysis suggests that there are three common characteristics to effective sustainability disclosure policies (see Figure 2 opposite).


Our analysis suggests that disclosure policies should be mandatory (as opposed to voluntary), prescriptive (as opposed to principles-based) and broad (as opposed to narrow), in terms of the number of sustainability indicators targeted. We refer to policies that share these three characteristics as ‘super policies’.

Of the 10 top ranked exchanges in our study, nine are based in countries with at least one super policy in force. Conversely, of the 10 bottom performing stock exchanges, nine are based in countries with no super policies. The single exception is the Shenzhen Stock Exchange, which published a set of Social Responsibility Guidelines in 2006.


Sustainability reporting can be viewed as the latest manifestation in the more general trend towards expanding corporate disclosure practices. Future milestones on this pathway include integrated reporting, and the provision of more granular and standardised ‘non-financial’ information.

In addition to facilitating a more complete picture of a company’s social and environmental impacts, sustainability reporting gives investors an additional source of data that can be exploited in the context of portfolio management.

While more research is needed to fully flesh out the relationship between disclosure policy and disclosure performance, our analysis suggests that mandatory policy instruments that are both prescriptive and broad are most strongly correlated with sustainability disclosure excellence. Stock exchanges – and indeed policymakers of all description – should consider incorporating these design characteristics into their sustainability disclosure policy programme.

The phenomenon of corporate sustainability reporting is here to stay, and demand among institutional investors, asset managers, community groups and other stakeholders for quantitative corporate sustainability data is only going to increase going forward. Stock exchanges should strategically review how they can best align themselves with this trend.


Doug Morrow Managing Director, CK Capital

‘Trends in Sustainability Disclosure: Benchmarking the World’s Stock Exchanges’ is available on the Corporate Knights website:

Comments on the report are invited and may be addressed to the authors at: