Despite a 10-year conversation, which ended in 2019 to get a buy-in of global stock exchanges on sustainable issues relating to the environment, social welfare and governance (ESG), the United Nations (UN), and its partners see more work in the coming years.
In a 10-year report presented on its Sustainable Stock Exchanges Initiative (SSEI), the UN and its partners: UNCTAD, UN Global Compact, UNEP Finance Initiative, and Principle for Responsible Investment, said the vision is to get world capital market signals to align with public policy goals on sustainable development.
“The SSE’s mission is to provide a global platform for exploring how exchanges, in collaboration with investors, companies (issuers), regulators, policymakers and relevant international organizations, can enhance performance on ESG (environmental, social and corporate governance) issues and encourage sustainable investment, including the financing of the UN Sustainable Development Goals (SDGs).
“The SSE seeks to achieve this mission through an integrated programme of conducting evidence-based policy analysis, facilitating a network and forum for multi-stakeholder consensus-building, and providing technical assistance and advisory services,” the UN said.
Align Financial Flows
In his message in the SSE 10-year Impact Report, UN Secretary-General, Antonio Gutteres, stressed the need to do even more in the next decade, even as he welcomes global efforts to align financial flows with sustainable development.
Stressing that stock exchanges and the private sector are critical partners to the sustainable initiative, he also charged them to promote gender equality, and to support small and medium sized enterprises (SMEs).
Gutteres urged them “to step up with green bonds, divestment from fossil fuels, disaster risk insurance instruments, and other products that will help us address the climate emergency,” and to support “the UN Global Compact’s campaign on business ambition for 1.5 degrees celsius and engage with the Task Force on Climate Related Financial Disclosures.”
Members of the SSE Governing Board also commented on their findings in the 10-year report, in which they took stock of how far they’ve come and how much further they need to go.
Sustainable Finance Activities
The Director, Investment and Enterprise, UN Conference on Trade and Development (UNCTAD), and Board Chair, James Zhan, noted that all the participating partners programmes are geared toward realizing the targets member States agreed on in the Sustainable Development Goals (SDGs), and the Paris Climate Accord.
“This broad mosaic of UN initiatives reflects a broader sustainable development movement that is affecting all members of the global investment chain, from pension funds and asset managers, through stock exchanges and securities regulators to global firms engaged in foreign direct investment,” he said.
Zhan admitted there’s been a big change in the level of engagement by exchanges. “Where exchanges were once relatively quiet on the topic of sustainability, they have now become vocal and determined. This report tracks a significant upward trend in exchange sustainable finance activities, from guiding their issuers to produce better sustainability information for investors to innovating new sustainability themed products and listing segments like those for green bonds,” he said.
However, “The bad news is that despite the gains of the past decade, we have only just begun to develop strategies to successfully address the challenges we face. Making matters even more serious, many of these goals, such as addressing climate change, are not aspirational in nature, but critical to the very survival of humanity. And to be clear, these are not only long-term problems, rather they are very much present-day challenges, some of which are already being felt in market prices, portfolio allocation and people’s daily lives,” he insisted.
Mainstreaming Sustainable Finance
On her part, the Chief Executive Officer (CEO) and Executive Director, UN Global Compact, Lise Kingo, noted that stock exchanges serve as a crucial interface between companies and investors. “We are encouraged and excited to see a critical mass of stock exchanges joining the SSE and making a public commitment to mainstreaming sustainable finance,” she said.
Kingo continued; “It is a matter of fact that sustainable business is good business. Investors are increasingly cognizant of the economic value of sustainability and demand transparency on the environmental, social and governance impacts of their investments. The SSE has played a key role in bringing the financial sector to the table on core issues that we tackle at the UN Global Compact.
“The SSE can play a crucial part in improving transparency on climate-related risks and encourage their markets to adopt stronger governance and disclosure frameworks such as the Taskforce for Climate-related Financial Disclosures (TCFD).
“The UN Global Compact is working with its member companies to catalyze a diversified market for mainstream SDG investments. Exchanges can offer a vital platform for potential issuers to launch SDG-aligned investment products. With instruments such as SDG bonds attracting increasing interest from investors, we see this as a huge potential opportunity for both exchanges and market participants.”
ESG Management Tools
For Managing Director, Principles for Responsible Investment, Fiona Reynolds, participating in the conversation on ESG factors has become a necessary part of investment.
She explained; “in the context of market volatility, climate change and regulatory intervention, ESG management offers an expanded set of tools to address previously unmet investment industry needs.”
She added that in the past 10 years, the SSE has supported stock exchanges to:
• Convene and educate market participants on sustainability topics;
• Improve ESG disclosures by listed companies; and
• Support the energy transition through new products such as green indices and green bonds.
She however insists that further work is necessary and urged Stock exchanges to:
Expand the reach of responsible investment training. They should annually review the ESG skills and competencies of their management teams, including familiarity with climate change scenarios.
Support meaningful, forward-looking and globally comparable company ESG disclosures. Exchanges with voluntary disclosure frameworks should move to mandatory disclosure, and all exchanges should officially endorse the TCFD.
Through new products and benchmarks, match the goodwill on both the buy-side and sell-side to rapidly advance the demand for sustainable capital.
Improving Management Structures
For the Head, UN Environment Finance Initiative, Eric Usher, exchanges also need to look at how they can improve their management structures, strategies and offering of products and services to meet the SDGs.
He argued that “Nature is declining globally at rates unprecedented in human history. Climate change and its impacts on the planet’s people; its ecosystems and even its economies are finally making headline news around the world. It’s become clear that financial markets, with stock exchanges at the heart of the system, need to play their part, sooner rather than later.”
Besides, he added, “Realizing the Sustainable Development Goals while transitioning our economies towards net-zero carbon will require extraordinary financing and change. Through the SSE initiative, the world’s stock exchanges have taken a bold but pragmatic lead in helping investors and companies identify where and how investments can generate positive societal, economic, and environmental impacts.”