Corporate responsibility at the Israeli Stock Exchange ?

In recent years, awareness of the issue of corporate responsibility has been expanding worldwide among investors who expect companies to take part in the global effort and report on the impact of their activities regarding the climate crisis, social equality and the improvement of corporate responsibility. Many studies point to the benefits of companies addressing these issues, including increasing the transparency of their operations, reducing long-term risks, more informed decisions due to management diversity, attracting young investors and more.

Investor interest is reflected in an increase in investments based on corporate responsibility considerations, with about 45% in Europe and 33% in the US of total corporate investments taking these considerations into account. In recent years, various trends have developed, including the launch of lists and indices of green stocks and bonds, an increase in the activity of regulators and stock exchanges around the world to charge / encourage companies to publish corporate responsibility reports, an increase in the number of companies publishing corporate responsibility reports and more.

The situation in Israel today is such that only about 25 listed companies whose shares are included in the Tel Aviv-125 index publish a corporate responsibility report. With the increase in interest from foreign investors in the Israeli stock market, it is also important for Israeli companies to meet international standards, including corporate responsibility issues. Israel has had an Ma'aleh index since 2005 and the Cleantech and Tel Aviv indices 125 clean climates since 2021. These indices are currently monitored by mutual funds and imitation funds with a total value of about NIS 88 million.

In the past year, regulators in Israel have taken various steps to promote the issue:

• In April 2021, the Capital Market Authority issued a call to all corporations to publish an annual corporate responsibility report on a voluntary basis and proposed an outline for appropriate disclosure.

• In November 2021, the Capital Market Insurance and Return Savings Authority issued an instruction directing ESG considerations that may affect the investment performance of institutional entities

• In December 2021, the Supervisor of Banks at the Bank of Israel updated its instructions and required banks to publish a corporate responsibility report every year, instead of once every two years.

• In January 2022, the Innovation Authority announced that it had begun the process of assimilating corporate responsibility considerations in its funding channels as part of a worldview that promotes a sustainable innovation industry in Israel.

Another area to which the spotlight is directed is increasing the number of women on the board. Studies show that diverse corporations have a higher potential for success. In addition, the studies show that female representation, to a significant extent, on the board of directors contributed to the increase in the share price after the issue and to the company's profits and the efficiency of the board of directors. Many countries, stock exchanges and investment houses around the world have realized that a diverse board of directors has faithfully represented the composition of shareholders and brings economic value to the company, meaning not only the principle of equality requires diversity on boards of directors but economic logic. In August 2021, the NASDAQ approved a regulation requiring companies listed for trading on the NASDAQ to include full diversity on boards of directors while reporting the reasons for non-compliance. Israeli law requires only government companies with a gender-balanced board of directors. Public companies are required to appoint one woman to the board without a reporting or enforcement obligation, an issue that is currently being addressed by the legislator and will include a reporting and enforcement obligation. This is only about gender diversity, disregarding other aspects of diversity and inclusion.

Today (30.1.2022) the TASE issued a call to the public for comments in which it states that it seeks to encourage listed companies to publish corporate responsibility reports and even joined the UN initiative to encourage exchanges to operate in the field. It also plans to publish a first corporate responsibility report in the first quarter of 2022. In addition, the importance of increasing the number of women on boards of directors to at least 35% of the board composition was emphasized, understanding the inherent benefit for companies and shareholders as a result of diversification.

In my opinion, the Israeli regulator should be careful about creating a reporting industry. There is little meaning to a report that does not include metrics, does not target ambitious and achievable goals. Creating a culture of Greenwash will not lead to a real change in the conduct of companies and in the focus of managements. Focusing on gender equality is not an easy task, but attention should also be paid to all aspects of inclusion through recruitment processes that give equal opportunity to all types of populations. Attention must be paid to a sustainable supply chain. There are lots of points to consider. Publishing a report as a goal is a real pointless act. A report is a tool for creating a strategy and that is where the focus should be.

#TSBC

#impact investing

Sivan Lachman

#diversity and inclusion

#gender equality