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November 25, 2013

EIRIS to Create Sustainable Index for Turkish Stock Exchange
    by Robert Kropp

The agreement with Borsa Istanbul follows the London-based sustainable investment research firm's finding that companies in emerging markets with sustainable stock exchanges outperform their peers. -- EIRIS recently published a survey of sustainable stock exchanges which includes a case study focusing specifically on stock exchanges in emerging markets.

“Companies from countries with stock exchanges that have implemented significant sustainability initiatives do better when rated on their ESG (environmental, social, and corporate governance) performance,” EIRIS found. In particular, “there was a markedly strong performance from both South African and Brazilian companies.” In 2010, the Johannesburg Stock Exchange (JSE) began requiring its more than 450 companies to produce integrated reports in which financial and ESG information are combined in a single document. And last year, BM&FBOVESPA, the Brazilian Stock Exchange, adopted a report-or-explain position to encourage sustainability reporting by its listed companies.

EIRIS is especially well-positioned for such an analysis of sustainability initiatives by emerging market stock exchanges, as it has assisted both the South African and Brazilian exchanges in the establishment of sustainable stock indexes. In 2012, EIRIS found that sustainable stock indexes in Brazil and South Africa “have leapfrogged their developed-world peers by creating advanced ESG listing requirements, sustainability indices and other products to drive disclosure.”

In 2011, Mexico's stock exchange (BMV), the second-largest exchange in Latin America, launched a sustainability index, the methodology and assessment framework is provided by EIRIS and the research firm's Mexican partner, Ecovalores.

Describing the collaboration with BMV as "part of our wider work with stock exchanges around the world," Peter Webster, Executive Director of EIRIS, said at the time, "Stock exchanges around the world—particularly those in emerging markets—are embracing the view that they have a key role to play in promoting sustainability and greater disclosure by their listed companies."

EIRIS recently announced yet another collaboration with an emerging market stock exchange. Borsa Istanbul, the Turkish stock exchange, has chosen EIRIS “as its partner to develop the BIST Sustainability Index, which will be launched in early 2014,” EIRIS reported.

“We believe that the index will bring competitive advantage to Borsa İstanbul listed companies,” Mustafa Kemal Yılmaz, Executive Vice President of Borsa İstanbul, stated. “They will use the Index as a performance benchmark to improve their social, environmental and governance performances and to adopt new targets.”

“Investors on the other hand, will have a new instrument to develop new investment products and a showcase to select and invest in the companies with better sustainability performances,” he continued.

“Emerging markets have a vital role to play in developing a global sustainable economy,” Webster of EIRIS said. “Sustainable stock exchange initiatives, such as the Borsa Istanbul’s Sustainability Index initiative, are crucial in driving more sustainable corporate performance globally and at the local level.”

With allocations to investments in emerging markets growing rapidly, investor confidence becomes an increasingly important consideration. Yet according to a 2012 analysis by EIRIS, 78% of investors cite concerns over ESG performance by companies in emerging markets as a potential impediment to investment, despite a growing integration of such markets into the global economy.

Investors surveyed by EIRIS for the report identified stock exchanges “as being fundamental to driving forward ESG disclosure in emerging markets through the development and promotion of innovative products such as sustainability indices and listing rules that encourage reporting on ESG criteria.”

“A number of emerging market stock exchanges have leap-frogged their developed world peers in developing sustainability/green or socially responsible indices and financial products in the last five years,” EIRIS found.

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