Last year, the International Finance Corporation (IFC) produced a report, the goal of which was to help the Shanghai Stock Exchange (SSE) improve the quality of sustainability reporting by Chinese companies.
While SSE was "one of the first stock exchanges to issue a directive for companies to publish a sustainability report," IFC noted, "Existing frameworks provide guidance that is either too vague or too broad." One way in which stock exchanges can encourage corporate sustainability reporting, IFC found, is by establishing sustainability indexes, as has been done in South Africa and Brazil.
This week, SSE announced that it will launch the SSE Sustainable Development Industry Index and the CSI Commodity Equity Index on August 22. According to the Exchange, the three themes of the Sustainable Development Industry Index will be Education and Publishing, Low Carbon Economy, and Cyclic Economy.
The Low Carbon Economy stocks are identified by SSE as those of companies engaged in "clean power generation, energy transfer and storage, clean production and consumption, and water and waste treatment." Cyclic Economy stocks are engaged in energy efficiency.
The CSI Commodity Equity Index consists of companies in such resource-intensive industries as Oil & Gas and Metals & Mining. No mention is made in SSE's methodology of the sustainability reporting requirements of companies included in the Commodity Equity Index; however, as a member of the World Federation of Exchanges (WFE), it can be expected that sustainability will play a role in the selection of components for the Index.
In a 2009 report on exchanges and sustainable investment, WFE noted that the sustainable investment strategies used by its members include improving environmental, social, and corporate governance (ESG) standards by companies, increasing the number of products and services for sustainable investors, and creating specialized markets for specific sustainable investment strategies.
This article originally appeared on SocialFunds.com, and is reprinted with permission.