Sustainability in sharper focus: Recognising reporting excellence in Sri Lankan Capital Markets domain

The 12th annual CFA Society Sri Lanka Capital Market Awards – scheduled to be held on Tuesday, 24 June, at Cinnamon Life at City of Dreams Sri Lanka – is set to feature the Best Sustainability Reporting Award, which was first introduced at the 2024 edition of the signature event that seeks to recognise and reward local capital market participants.

The objective of the award is to recognise companies that demonstrate excellence in sustainability reporting across environmental, social and governance factors. Currently, only companies listed on the Colombo Stock Exchange (CSE) in Sri Lanka are eligible for the Best Sustainability Reporting Award. 

The primary reason for the introduction of the Best Sustainability Reporting Award includes the low specialised awareness of sustainability in Sri Lanka’s capital markets domain, with only a handful of large corporations considering sustainability factors in detail. Local investors also tend to demonstrate low awareness levels on the subject. Giving prominence to sustainability reporting among listed entities is anticipated to better help them understand that financial performance is not the sole measure of performance, and a holistic approach to sustainability and a sustainable business model also drives financial performance.

An evolving global landscape has prompted governments and regulatory bodies worldwide to rapidly enact and strengthen sustainability disclosure requirements, whilst balancing the pace of adoption against the practicality of adoption.

In addition, an increase in sustainability-conscious investments has been observed whereby a significant and growing share of global managed assets are now screened for sustainability factors. Investors, particularly institutional investors – such as pension funds, asset managers, and sovereign wealth funds – are increasingly integrating sustainability considerations into their investment decisions.

The process of sustainability reporting also forces companies to systematically identify, assess, and manage risks related to environmental factors (e.g. climate change and resource scarcity), social issues (labour practices, supply chain human rights etc.), and governance shortcomings (such as board diversity and corruption).

Keeping these factors in mind, the key evaluation criteria for the Best Sustainability Reporting Award encompass integration of sustainability into business strategy, board and management accountability, clarity and measurability of sustainability goals and targets, and consistency in reporting. 

Additionally, the award assesses for risk identification and mitigation, commitment to transparency and reporting on negative impacts, readability and user-friendliness of sustainability reports and disclosures, sustainability reporting disclosures and independent/third party verification, and adoption of sustainability frameworks.

In the year following the launch of the Best ESG Reporting Award, CFA Society Sri Lanka observes that there has been a growing trend towards integrating sustainability considerations into the core business strategy, as reflected in long-term business objectives or values. 

CFA Society Sri Lanka notes that despite the lack of mandatory disclosure requirements, most companies have adopted (or are in the process of adopting) globally recognised frameworks and standards. Furthermore, companies are enhancing the transparency of their sustainability initiatives by leveraging multiple communication channels such as annual reports, stand-alone sustainability reports, and corporate websites.

The numerous advocacy efforts carried out by the CFA Institute to promote sustainability standards in reporting are complemented by CFA Society Sri Lanka’s advocacy efforts, which include webinars catering to investors and companies, as well as universities and the general public. 

The Certificate in Sustainability Investing, awarded by CFA Institute, is also expected to move the needle for practitioners in a bid to develop sustainability-related skills among local market practitioners.