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CFO INSIGHTS

Interview with Evan Harvey - Managing Director, Corporate Sustainability at NASDAQ OMX.

Jul 19, 2014

 

Editor: What trends do you see in terms of how exchanges are forwarding corporate sustainability reporting?

 

Evan: I think that there has been a major transition over the last half a decade or so.  We’re thinking about taking a broader view of what risk means, looking at the risk factors involved in terms of the environment, in terms of climate response and in areas like ethics, corrupt bribery practices in foreign countries, supply chain oversight, and data centre efficiency for example.  This idea of expanding the concept of risk into other areas and calling it “sustainability” or calling it environmental, social and governance reporting or ESG, has been a real shift in the last five years.

 

Editor:  What industry is leading ESG disclosure in America?

 

Evan: Consumer facing companies in general are driving this somewhat because they’ve been pressured from the consumer side and from the investor side.  Oil and gas certainly has been in the spotlight.  There’s a lot of attention paid to the practices, externally and internally of those companies.  A lot of companies in the electronics industry have stepped up on a big way through the awareness of issues like conflict minerals in the supply chain.  In just a few recent years you’ve seen things like Intel taking conflict minerals completely out of their supply chain, which was unthinkable five years ago.

 

Editor: How have global stock exchanges harmonized disclosure requirements?

 

Evan: Different exchanges around the world have applied different rules.  We have some exchanges, for example, in South Africa and in Brazil and in other places in Asia where they’ve taken a very hands-on approach, either through direct government mandate or through very aggressive regulation companies needed to expand their definition of materiality.  They’re required to disclose ESG factors in not only their regulatory business disclosures, but to the exchanges directly.  That approach hasn’t really been applied in the U.S.  NASDAQ and NYSC compete with each other very openly for listings, and there is this perception out there that if you have a very burdensome regulatory requirement and the other exchange does not, then the company will simply pick the path of least resistance.

 

Editor: What has NASDAQ been doing specifically around ESG disclosure?

 

Evan: What the exchanges in the U.S. and the other parts of Europe have been doing is educating listed companies about the value of this information.  So instead in using the regulatory stick to compel companies to disclose information, we’ve been using the carrot of education.  It’s completely in our own self-interest because we want the listed companies that we have on our exchange today to be there 20 years from now.  We think that if companies are not integrating ESG thinking into their business, if they’re not looking at things like the risks related to climate change, and the risks related to poor supply chain oversight, then their business is doomed in a lot of ways.  NASDAQ has been actively engaging and educating companies about the value in this.   We’ve been putting different companies together for conversations - companies that have a low or a non-performing ESG reputation can learn from companies that do it well.  That’s been really successful so far.

 

Editor: Can you compare the initiatives of the NYSC versus NASDAQ in this space?

 

Evan: The NASDAQ brand is built on efficiency and speed, transparency and leveraging technology to lower cost, and there’s a whole part of the sustainability argument that is completely in sync with that point of view.  So I think that without commenting too directly on what the NYSC does or doesn’t do, we’ve been extremely vocal, perhaps even more present and public on this issue than they have.

 

Editor:  In your view, what is the way forward in terms of improving disclosure in this particular space in the U.S.?  Where do you see it heading over the next five years?

 

Evan: I think that you’re going to have continued investor pressure for the data, and not just to flood the market with more data, but for better, more quality data, more harmonized data.  So over the next five years you’re going to see some kind of unification or harmonization efforts with these different reporting channels.  You’ve got the emergence of the Sustainability Accounting Standards Board, and they’ve just made some significant enhancements to their infrastructure, bringing in people like Mike Bloomberg and Mary Shapiro from the SEC to Chair their boards, so I think that you see that they have a lot of momentum right now.  You’ve got established players in the space like the GRI and the carbon disclosure project.  I think that over the next five years you’re going to see more of a harmonization of these reporting frameworks, and I think that companies are going to be less confused about how, what and where to report information.

 

 

 

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