In light of global capital market investors’ growing interest in the topic of responsible investments, the Israel Securities Authority recently published a proposed outline for corporate responsibility and ESG risk disclosures.
The purpose of the outline is, inter alia, to form a baseline for Israeli reporting corporations to assimilate corporate responsibility into their businesses. Adoption of the principles proposed in the outline and publication of an annual report on corporate responsibility may be helpful to investors interested in the ESG aspects of reporting corporations.
The term “ESG” (environmental, social, and governance) is an abbreviation that groups together topics that are the focus of responsible investments. These encompass, inter alia, environmental, social justice, and corporate governance aspects. Since the convening of the UN Climate Change Conference and the adoption of the Paris Agreement, the environmental component of ESG has risen in importance. Israel, too, as one of the countries that undertook the targets defined in the Paris Agreement, is advancing legislation, inter alia, to promote electricity generation from renewable energy sources, with the goal of achieving the targets of reducing carbon emissions and reaching zero emissions by 2050.
The recommendations published by the ISA include:
- Publishing an annual corporate responsibility report for the investor public.
- Publishing the aforementioned report online and opening a website on behalf of the ISA dedicated to these reports.
- Encouraging corporations to prepare these reports based on customary international criteria, such as those of the Sustainability Accounting Standards Board (SASB) or the GRI Global Reporting Initiative (GRI), and publishing an English version as well.
- Publishing the corporate responsibility report shortly after publishing the periodic report for the respective reporting year.
The ISA also clarified its intent to support corporations that opt to publish an annual corporate responsibility report by providing training courses and professional workshops to representatives of reporting corporations.
The ISA’s call to publish the report in English aims to serve the best interests of reporting corporations. The goal is to attract both international investors as well as rating companies that rank corporations based on ESG data.
The published outline also refers to global trends and research studies proving that responsible and transparent investments are beneficial for reporting corporations in the long term, as they may reduce exposure to lawsuits and regulatory interventions. It is also important to note that, at this stage, the ISA published its outline as a “recommended outline” and the call to publish a corporate responsibility report is only on a voluntary basis. The ISA’s publication of these reports will not be subject to the Securities Law, so as not to create new obligations not currently prescribed by law.
In light of the fact that at issue are considerations gradually becoming a material influential factor in investors’ transaction considerations, it is advisable for all companies to take action to address the environmental component of their activities. Making adjustments of this type and contending with the emerging standards relating to sustainability is a long process and will obviously be different for each company.
Here is a link to the ISA’s full outline (in Hebrew).