The role of stock exchanges in sustainable finance
Wednesday, 01 Dec 2021
Carolyn Gelling, Head of Equity Markets at The International Stock Exchange (TISE), looks at how stock exchanges, such as TISE, can help to mobilise capital in the fight against climate change.
At the United Nations' Climate Change Conference, COP26, some of the world's most influential stakeholders gathered in Glasgow to make decisions which will impact the future of our planet.
This followed August's report from the Inter-governmental Panel on Climate Change (IPCC) which warned that a lack of action will result in (potentially irreversible) damage, such as increased temperatures, rising sea levels and more extreme weather events.
It means that public capital – finance from governments – alone will not be sufficient to adequately tackle the problem. We will also need to "crowd in" private capital of institutional, professional and retail investors to fund changes which support a more sustainable future.
What we have seen in the last few years is a significant increase in capital allocation towards green and sustainable finance, although ultimately it does remain a small proportion of total investment mandates.
"public capital – finance from governments – alone will not be sufficient to adequately tackle the problem. We will also need to "crowd in" private capital."
At the same time, there has been a significant maturing of the sector, for example through the development of accompanying industry frameworks and ratings, as well as a range of governmental and regulatory policy initiatives at global, regional and national levels.
These changes have been accelerated by the pandemic, which has also broadened the focus of market participants from a concentration on the environment to a more holistic view of sustainability.
What I expect to see in the future is a further consolidation of this integrated pursuit of environmental, social and sustainable objectives. One example of this is the 'Just Transition' initiative which seeks to ensure that the transition to a net-zero economy is fair and does not disadvantage specific sectors of society.
So what role can stock exchanges play?
At their heart, stock exchanges bring together companies who issue securities, whether equities, bonds or other instruments, and investors who want to invest and trade in those investments.
In doing so, exchanges are undertaking various initiatives to help the fight against global climate change but ultimately their key role is to facilitate the flow of capital into sustainable investments.
For example, at TISE, in July we launched a sustainable market segment, TISE Sustainable. It is a comprehensive and reputable enabler for increased capital allocation towards environmental, social or sustainable activities.
TISE Sustainable is Europe's most comprehensive sustainable market segment and provides qualifying issuers and their securities with enhanced connectivity, credibility, transparency and visibility among investors.
The segment is available free of charge to all TISE-listed issuers – including both equity and bond issuers – who comply with at least one recognised framework or rating.
Investors can take comfort from the fact that the displayed issuers must have demonstrated their compliance to qualify for inclusion and that they are undertaking ongoing public sustainability reporting.
"TISE Sustainable is Europe's most comprehensive sustainable market segment and provides qualifying issuers and their securities with enhanced visibility among investors."
Examples of admissions to TISE Sustainable include: green bonds issued by the likes of the world's largest recycler of aluminium, Novelis, and the largest sustainable property developer in the UK, Canary Wharf Group; sustainable bonds issued by a sovereign, The Isle of Man Treasury; and sustainability-linked bonds issued by Pfleiderer, a German headquartered company with 125 years' history of sustainably manufacturing wood products.
These examples reflect TISE's position as a major European professional bond market, although the exchange is also home to debt issuers holding other qualifications, such as Guernsey Green Fund status, and other relevant issuers listed on TISE include Real Estate Investment Trusts (REITs) investing into social housing.
"We intend to play our full role in…helping to finance solutions which we all need for a sustainable future."
In addition to launching TISE Sustainable, we have also joined the United Nations' Sustainable Stock Exchanges Initiative (UN SSE). UN SSE is a UN Partnership Programme whose mission is to provide a global platform for exploring how exchanges, in collaboration with investors, issuers and other market participants, can encourage sustainable investment, including the financing of the UN Sustainable Development Goals.
Membership of the UN SSE puts us at the heart of global efforts to encourage sustainable investment. We will also continue to explore initiatives by liaising with our peers through our memberships of the International Organisation of Securities Commissions (IOSCO) and the World Federation of Exchanges (WFE), as well as the Association for Financial Markets in Europe (AFME) and the International Capital Market Association (ICMA).
We intend to play our full role in not only helping to mitigate the risks of climate change but through initiatives, such as TISE Sustainable, being active in helping to finance solutions which we all need for a sustainable future.
I expect that following the IPCC report and COP 26, exchanges will continue to play an increased and vital role in mobilising capital to ensure the efficient financing of green, social and sustainable initiatives.
This article was originally published on the website of the Institute of Directors, www.iod.com
Carolyn Gelling
Head of Equity Markets
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