Stock exchanges around the world are increasingly embracing sustainability, according to the latest annual sustainability report from the World Federation of Exchanges (WFE), an industry group for exchanges and central clearing counterparties.
The WFE said it was the first time since the survey began nine years ago that all respondents adopted at least one environment, social and governance (ESG)) initiative and at least one of the WFE’s sustainability principles.
The survey, which covered 54 exchanges, found that the average number of ESG initiatives pursued by exchanges — such as launching ESG indexes and listing green finance products — rose from 8.4 in last year’s survey to 9.2 this year.
It also noted that the number of exchanges that have engaged in at least 12 initiatives has doubled year over year from eight to 16.
Twelve exchanges have also now adopted net-zero targets, and 70% of respondents have implemented initiatives that match all of the WFE’s principles.
The survey also showed that 58% of exchanges are reporting their own carbon emissions. Of those, 68% cover Scope 1, 2 and 3 emissions, which aim to capture direct and indirect emissions throughout their value chain.
“This is a real milestone, as our survey reveals widespread adoption among exchanges of both the WFE Sustainability Principles and ESG initiatives,” said Nandini Sukumar, chief executive officer of the WFE
Dr. Pedro Gurrola-Perez, head of research at WFE, notes that, “In the past, when talking about sustainability the focus was mostly on the investment world. However, for many years exchanges have been supportive of the ESG agenda and have engaged in different initiatives, including providing products such as green bonds, which are the most popular, as well as sustainability linked bonds and ESG exchange traded funds to meet client needs. They have also worked with a wide range of stakeholders such as investors and regulators to promote the sustainability agenda.”
He noted that WFE originally launched the survey to assess what exchanges were doing and how they were progressing. Five years ago, it introduced five sustainability principles designed to encourage all exchanges to use these principles as the baseline for the development of their market-specific initiatives.
They included education of market participants, promotion of ESG disclosures, multi-stakeholder engagement for sustainable finance, provision of markets and products, and establishing effective internal governance in support of sustainability efforts.
In April, WFE debuted Green Equity Principles – a global framework for identifying and appointing shares as green.
Although progress has been made, the main challenges reported by exchanges in the report were external factors such as limited resources for implementation, unreliable ESG data, and a lack of standardised reporting frameworks for promoting sustainability.
The most frequently reported motivation for ESG engagement was sustainability concerns and opportunities for business expansion.
Unsurprisingly different exchanges are at different stages of evolution, according to Gurrola-Perez. “Some are more advanced than others but it depends on their jurisdictions and the state of their economies, among other factors. However, we do expect exchanges to continue the trend of adopting more initiatives in line with our sustainability principles.”
As for the exchanges that have made the most progress, Deutsche Börse Group (DBG) and Luxembourg Stock Exchange (LuxSE), win top marks for participating in all 14 initiatives.
The report also highlighted other exchanges achievements such as Borsa İstanbul (BIST), which has a history of creating sustainability-themed indices, launching the Sustainability 25 Index last year. It comprises companies with exceptional sustainability performance, market capitalisation, and liquidity.
Meanwhile, the Hong Kong Exchanges and Clearing Limited (HKEX)’s Sustainable and Green Exchange (STAGE) welcomed more sustainable and green finance products this year and now features data and information on 100+ green, social and sustainability (GSS) bonds, as well as ESG ratings for more than 720 companies.
The platform remains a central hub for data and information on sustainable and green finance products in Asia.
Several South African financial institutions have also listed green, social, and sustainability-focused bonds and ETFs on the Johannesburg Stock Exchange (JSE). FirstRand Bank and Nedbank are funding green and eco-friendly projects, while Standard Bank aims to finance affordable housing for female borrowers.
The Korea Exchange (KRX) is meeting ESG demand by expanding its range of products. It introduced a sustainability-linked bonds segment to overcome the limitations of existing Socially Responsible Investment (SRI) bonds and to back companies’ sustainability initiatives.
By the end of 2022, the China Securities Index, a Shanghai Stock Exchange (SSE) subsidiary, had released 122 ESG-related indices. There were 77 products tracking these indices with assets under management (AUM) over RMB 100 billion ($14.4 billion).
The SSE has also supported low-carbon industries through equity financing, with eight new energy, energy-saving, and environmental protection sector companies listed on the SSE STAR Market in 2022.
Singapore Exchange (SGX) launched the Sustainable Fixed Income Initiative (SFI Initiative) in November 2022. SFI Initiative is designed to help investors identify green, social and sustainable fixed-income securities that meet recognised standards.
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