Archived press release

Listing rules to go green

10 March 2003

Company listings requirements should be overhauled to include environmental, social and ethical information, according to new research published today by Claros Consulting and Friends of the Earth. The report, `Open Disclosure: sustainability and the listings regime (PDF†)' [1], appears on the eve [Tuesday] of a Charted Institute of Management Accountants (CIMA) Round Table discussion on listings requirements, due to be attended by Environment Minister Michael Meacher MP.

Environmental and social impacts such as climate change and human rights are now widely recognised as genuine risks that affect the value of a company and its ability to operate successfully. Open Disclosure reviews existing listing regimes in the UK and abroad and reveals that the UK is lagging behind other stock exchanges in addressing social and environmental risks.

Progressive companies already recognise the impact of social and environmental factors on their value. A recent survey of the top 500 global companies by the Carbon Disclosure Project, for example, found that 80 per cent of respondents acknowledged that climate change posed a financial risk to their business [2]. Similarly the case of the mining company Xstrata [3], whose share price fell following proposals for a coal tax in Japan, reflects the risks of failing to address significant environmental risks such as climate change.

Information disclosure is at the heart of listing and the report concludes that this must include providing information to investors on the social, environmental and ethical risks to a company. The Financial Services Authority is already committed to reviewing UK listings rules, and is expected to publish a consultation paper this summer, with a final policy statement scheduled by December 2004. At the same time, the European Union (EU) is also reviewing legislation, with Directives on new company listings (Prospectus) and on-going listing requirements (Transparency Obligations) due to be finalised in 2004.

Friends of the Earth Corporate Investment Coordinator Simon McRae said:

"Environmental and social impacts such as climate change and human rights are genuine risks that affect the value of a company and its ability to operate successfully. Investors need to know about these risks as these can have a major impact on the share price, and on long-term performance. This report clearly illustrates the need for UK listing rules to be reformed so that London Stock Exchange is relevant to the needs of 21^st century investors."

Notes

[1] Copies of the report and executive summaries are available from Friends of the Earth's press office.

[2] See www.cdproject.net/

[3] Xstrata and climate risks

"A direct example of the weakness of the current listing regime is the listing of Xstrata plc in March 2002. Xstrata is a mining company with a large exposure to coal which makes up around 70% of earnings. The principle market for coal is for use in generating electrical power. The burning of coal produces higher levels of greenhouse gases than does the use of alternatives such as natural gas. Hence, any agreements restricting greenhouse gas emissions such as the Kyoto Protocol are of significance to Xstrata. The Listing Particulars failed to recognise these risks, and downplayed the potential impact for investors. The Xstrata Listing: An Analysis of Climate Risks, a recent analysis of its Listing Particulars, identified serious shortcomings, with some 30 specific failures of the rules cited. Recent events have confirmed the risks identified, with the share price falling (and falling relative to the market) and the share price specifically reacting to news stories of a potential Japanese coal tax, falling some 12% over two days. Such a tax was predictable, given Japan's commitments under the Kyoto Protocol, and the listing particulars should have disclosed risks in this area." (p25, Open Disclosure, Sustainability and the listing regime)

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Published by Friends of the Earth Trust