NASDAQ’s Sandy Frucher takes stock of sustainability reporting

NASDAQ’s Vice Chair Meyer “Sandy” Frucher was a big hit during the Sustainability Accounting Standards Board’s (SASB) spring conference in New York City, reminding fellow panelists of common-sense wisdom during an arcane debate on sustainability reporting that pitted accounting standards against regulatory guidelines — and baffled most of the audience.

After a series of nonstop trips spanning four continents in his role as “roving ambassador without a portfolio” — and freshly returned from a board meeting of the World Federation of Exchanges (WFE) in Tokyo— Frucher sat down with me to talk what makes sense for companies, investors and the public as business embraces sustainability reporting.

Ann Goodman: Why did NASDAQ publish an integrated report last December?

Sandy Frucher: We’re a for-profit company. We used to be a boutique stock exchange in one place trading equities in the U.S. The world changed. We’ve become a global company, a multinational and multi-modal company — that is, we don’t trade a single product — equities — anymore, but also derivatives, options, futures. We morphed from a boutique to a global technology company. As you evolve, your focus and interests evolve.
So now, NASDAQ is more than a complex multinational enterprise. We also have responsibilities as a listing venue and want to be an exemplar of the things we preach, and good governance is at the top of the list. So we found ourselves pursuing the best governance models and took on governance issues regularly and found we were looking in an integrated area and sustainability issues. So we committed ourselves to clean up our own house. It’s happened over the last couple of years, with a focused and sustained effort.

Goodman: What is NASDAQ’s role in sustainability?

Frucher: We give suggestions to our listed companies and look at broad issues. Internally, in terms of environmental issues, we’ve become CO2 neutral in some areas, such as the Nordics, and we’ve started to have an integrated reporting system. We have audit, risk committees, separation of CEO and chair functions. We follow good and prescribed governance standards, and we’re working very hard on the financial reporting side of it. We joined the UN initiative on Sustainable Stock Exchanges and we were among the first North American exchange to join the UN Global Compact. We’re not fully integrating in reporting but working towards it.

Goodman: How did NASDAQ manage to keep the report to 32 pages when there is so much demanded of companies and readers in the GRI and other guidelines — and even more information to be put in an integrated report?

Frucher: There’s a long and a short answer here.

Short: In the first go-round, we focused on the key metrics and disclosures that were most valuable to our customers, investors and stakeholders. We did not want to obscure relevant facts in a sea of less vital data.

Long: We have much more data than we eventually decided to disclose. In the end, we — like all companies on this journey — have to build an internal culture that embraces that kind of public exposure. And I would only include data that I could independently verify; we were very scrupulous in the disclosures, and if anything didn’t seem right for any reason, we took it out. The thought was that we would re-verify and put it in the next report.

Goodman: Why do an integrated report?

Frucher: We’re using as a model accounting functions, and data collection is very complicated and expensive. These are issues that are both corporate issues and often driven by the individual’s own perspective. For instance, our CEO built a green house.
So, at the SASB conference I was placed between an accounting standards perspective and a legal SEC perspective. One said the standard was “could,” the other said it was “would.” I said the standard should be “should”: These are things that should be done. We’re a regulator, an SRO [self-regulatory organization]. And with that come legal standards and moral standards you should follow. So rather than debate what’s the right thing, we’re doing what we think is right for ourselves and our company. It’s best to try to achieve your standards yourself first [before requiring it of others.]

Goodman: What are some of the “shoulds”?

Frucher: There are lots of sustainability goals. On the financial side, they’re obvious. On the non-financial side, they’re good business. For example, in human resources: appropriate pay, treating employees well. And beyond that, there are community obligations; we have a foundation focused on financial literacy but we also fund Mentoring USA and have mentors in our own organization.
The point is, to be a good company you have to be a good citizen. To do the right thing by your investors is to do the right thing by your community. We don’t think lecturing people is how to get them to follow, but rather leading by example.

Goodman: You mentioned that NASDAQ is now global. What are some sustainability issues you’ve observed recently in your role as “roving ambassador”?

Frucher: On a global level, sustainability is helping [to improve reporting standards]. As part of WFE we should try to influence regulators [around the world], not by having single entities step up, but as a group.
Plus, listings are a globally competitive business. Besides NASDAQ, there’s London, Frankfurt and Hong Kong, which was the leading IPO venue in the world for the last few years. So it’s a competitive business, and you have to bring the whole world of exchanges in one direction and get a unified approach to regulators to bring about global sustainability. It’s not easy, because there are lots of folks involved. People are looking at environmental issues on a global scale. An exchange in an emerging country has different priorities than in developed countries. You certainly want those countries to be more environmentally sensitive, but they have a [legitimate] argument about the pace of development.

Goodman: Could you give a couple of concrete examples?

Frucher: For instance, in China — I think issues like recycling are far ahead. At the same time they’re putting one more power plant up all the time because of their needs, and it’s pretty ugly. When I was in Japan at WFE, there was a report from China that the air quality in Beijing costs citizens 5.5 years of life expectancy. So there’s growing recognition of the need to make progress on environmental needs. They’re surpassing us on alternative energy but building more power plants.
That translates to reporting and listing. Chinese exchanges are very supportive of the issues, but I don’t think they can unilaterally impose the standards. But if there are global standards, there would be a lot of support because that transcends international conflict. But it’s hard to do because: for one thing, [listing standards] are generally contentious issues, and another thing — and this is why SASB is so important — how much can you impose on companies, especially small ones, on the reporting side? They have so many demands.

Goodman: You were also recently in Turkey. What are your impressions?

Frucher: The Borsa Istanbul was one of the six initial drivers to get exchanges to sign the UN Global Compact. Its chair is wonderful, an example of someone who understands the economics of the sustainability issue. He was the No. 2 person in the Bank of Turkey. Preceding him, that exchange has been donating over time hundreds of millions on building schools; it’s a terrific example. Turkey from a religious perspective is Muslim, but secular, and the values are terrific. What I love about the current head, Ibrahim Turhan, is that he’s someone who understands the values structure as well as economics. He’s been a very outspoken supporter of sustainability.

Goodman: What are some of the pluses and minuses of seemingly endless sustainability reporting guidelines and standards?

Frucher: For one thing, if you layer and layer on layers of reporting, without looking at the totality, and without looking at what’s relevant to investors, companies will become privately listed. Those are issues stock exchanges must look at for competitive reasons, but also we risk [diminishing public good].

With public markets comes lots of transparency, which is very important for society. A case in point: the current economic crisis — all the unlisted products that brought us to our knees in this economy. So the transparency of public markets limits the risk. We don’t have a clue with private markets. The only way you find out is when the proverbial hits the fan.
So if we overburden the public markets, with a never-ending stream of reporting, companies will be driven away. Small companies, entrepreneurs, innovators won’t be able to sustain the cost and work of reporting and will seek other means.

There’s a balance, and I don’t believe it’s just self-serving. I believe in the gamut of sustainability, but within it, there has to be reasonableness and affordability. Otherwise you get less rather than more.

Goodman: Do you have any guidance or suggestions for companies as they navigate increasingly complex areas of reporting that can’t be easily quantified?

Frucher: The first and most important is whether there’s commitment at the top. So you have to get committed people to carry the ball first.

The other thing is that one has to recognize that a lot of this is incremental, not revolutionary but evolutionary. It requires vision, persistence, commitment and advocacy. So the people who don’t immediately change need to be there and the people charged with getting it done have to do it with consistent, step-by-step coalition building.
You have to convince a corporation with fiduciary responsibility that it makes financial and moral sense. So you need committed people to do everything.

What I do in sustainability communities is point the finger: It’s fine that exchanges develop green indexes, so why don’t people trade green indexes? It’s hard to get people to do that. I challenge lots of public pension funds, who are very clear in their commitment and helpful in getting companies to change. But could it be more effective to invest in green indexes?

Goodman: What’s next on NASDAQ’s agenda?

Frucher: There’s a WFE meeting in October in Mexico City. There are some very complicated issues, but I’m hopeful.
The good news looking ahead is GRI and others have put together standards — and the bad news is they’ve put together standards. It’s easier to sell a dream than a road map. The road map introduces a lot of complexities.