Frankfurt exchange operator unveils guidance for corporate sustainability reporting

Deutsche Boerse makes seven recommendations to firms

Deutsche Boerse, the operator of the Frankfurt stock exchange, has unveiled a best practice guide containing seven recommendations for how listed companies should report on ESG (environmental, social, governance) issues in their capital market communications.

According to the exchange, the purpose of the 42-page guide is to assist companies in meeting growing investor demands for sustainability reporting. The guide’s seven recommendations are divided into two groups – the first four dealing with what to report and the last three concerning how to report.

The guide comes as several listed German companies, including chemicals firm BASF, software firm SAP, Deutsche Bank and even Deutsche Boerse itself have begun filing reports under standards developed by the International Integrated Reporting Council (IIRC).

Starting with the first recommendation, “picture the top-down approach,” the guide suggests that senior management set the sustainability agenda for the firm and ensure that line managers work toward meeting the goals that have been set. When reporting on progress, the company should choose a few key performance indicators (KPIs) for the sake of simplicity.

The second recommendation calls on the company to “consider stakeholder requirements,” chiefly materiality. “Materiality is defined in terms of risks (e.g. penalties, lawsuits and reputation) or in terms of opportunity (e.g. products and markets).”Reporting on materiality should also not be in prose form, but in tabular format, with the risks and opportunities quantified.

Another recommendation is to “provide material information”. For example: “An oil and gas company would ignore the principle of materiality if its sustainability reporting was only about the diversity of its employees, while omitting information about its environmental impact as well as health and safety issues.”

The fifth hint concerns giving preference to quantitative data, seen as it is seen as being is better than qualitative data because it can be compared with similar data from other organisations.

Deutsche Boerse developed the recommendations with support from the key players in Germany’s investment industry, including the German Fund Association (BVI), the German Investor Relations Association (DIRK) and the German Association for Financial Analysis and Asset Management (DVFA).

Deutsche Boerse recommendations:
1. Picture the top-down approach
2. Consider stakeholder requirements (chiefly materiality)
3. Provide material information
4. Focus on a risk and return approach
5. Give preference to quantitative data
6. Select a suitable sustainability reporting standard
7. Presentation