Mobilising capital for a sustainable global economy
In an interview with Environmental Finance, Claire Dorrian, the leader of sustainable finance, capital markets, and post-trade at the London Stock Exchange, discusses how the organization is actively striving to facilitate sustainable economic growth and establish itself as a well-regarded champion of sustainability in the international financial markets.
Making LSE Sustainable: Transforming Into A Green Finance Hub
Claire Dorrian: The London Stock Exchange backs companies that are making a beneficial difference with their products and services and transitioning to a more environmentally friendly economy. We have a significant influence on the financial markets and contribute to the shift towards a low-carbon future through advocating for policies, participating in global sustainable finance initiatives, and offering various market-related resources. Our extensive range of markets allows businesses and investment funds to tap into a vast pool of sustainable capital, covering both equity and debt capital markets.
Last year, we established the Green Economy Mark, a recognition awarded to businesses and investment funds that exhibit at least 50% of their earnings originating from environmentally friendly products and services. It brings us great pride to share that we currently have over 100 companies and funds who proudly bear the Green Economy Mark.
We additionally possess a top-notch Bond Market that focuses on sustainability. In the previous year, we introduced our Voluntary Carbon Market certification, aimed at acknowledging funds and corporations that actively support projects aimed at countering climate change.
We also actively participate in ESG and climate policy discussions and work towards promoting a balanced reporting framework both within the UK and internationally. Additionally, we are in the process of designing different ESG data solutions and offerings. One of our notable tools is the ESG disclosure tool, and recently, in the year 2021, we introduced the Climate Governance Score and Tool. This tool assists companies in comprehending the extent to which they have integrated climate-related factors into their operations and guides them on effectively engaging with investors in this regard.
EF: How Is Education Aiding The Market?
CD: With our extensive know-how and capacities throughout the LSEG group, we can link various collections of Gdata for analysis, evaluations, and benchmarks. Additionally, we possess a comprehensive platform for Issuer Services, through which we interact with corporations regarding their ESG data and ratings, enabling broader accessibility to over 300 data points on 10,000 companies across 76 nations.
In addition, we offer frequent content and training on sustainability matters. For instance, we have recently collaborated with the United Nations Sustainable Stock Exchanges (UN SSE) to offer training on climate disclosure. This training is accessible to all companies listed on our markets. Moreover, we have developed Climate Reporting Guidance specifically designed for public companies operating in the United Kingdom's regulatory and policy framework. This guidance assists companies in London in incorporating climate risks and opportunities into their operational decision-making processes and reporting their carbon performance.
How Do You Handle Industry Initiatives & Policy?
In the United Kingdom, we have actively participated in the Disclosure Framework for UK Transition Plans by being a part of the task force. Additionally, we have offered extensive guidance and assistance in the creation of the UK Taxonomy through the Green Technical Advisory Group. Our department, FTSE Russell, has a classification system for green revenue that essentially serves as a green taxonomy and is closely matched with the European Union's taxonomy. We possess a wealth of knowledge and experience in the global development of green taxonomies.
We are active participants in multiple net-zero initiatives such as the United Nations Sustainable Stock Exchange Initiative and the Glasgow Financial Alliance for Net Zero (GFANZ). Being part of the Net Zero Financial Services Providers Alliance (NZFSPA), we are dedicated to ensuring that our offerings and solutions align with the net-zero goals of the companies we associate with.
We have been actively involved in leading the way in developing guidance on climate reporting through the UN SSE. Our goal is to assist companies worldwide in disclosing their information in accordance with the Task Force on Climate-Related Financial Disclosures (TCFD).
We have also been involved in various carbon market projects, like the UK Voluntary Carbon Markets Forum and the Integrity Council for the Voluntary Carbon Market. Our efforts in carbon markets have been significant because we have approached this market in a unique manner compared to others. While others have concentrated on becoming platforms for trading carbon credits, our main objective is to direct financial resources into projects that tackle climate change.
EF: How Can You Support Project Financing?
CD: The desire for voluntary carbon credits is set to increase as they contribute to the shift towards a low-carbon future. Nevertheless, insufficient funding is reaching newly developed projects aimed at combating climate change.
Moreover, corporations are seeking continuous availability of carbon credits over an extended period. Prior to the COP26 conference, we were contemplating the necessity of an expandable strategy for voluntary carbon markets. It should provide a robust, market-driven framework for channeling investments into carbon initiatives.
In October 2022, we introduced our Voluntary Carbon Market certification. We have become the pioneer platform to establish regulations for investment funds and businesses supporting initiatives aimed at reducing and removing carbon emissions. Our goal was to ensure transparency in the market within a well-established public market structure.
Investment funds or businesses can gain entry to the marketplaces of the London Stock Exchange and collect funds from investors. This capital is subsequently allocated to projects that address climate change, such as initiatives related to carbon capture, reforestation, or nature-based solutions. Afterwards, the fund or company may distribute a dividend in the form of a carbon credit.
We adhere to established carbon market norms, we are utilizing the trading system on our platform, and we are offering businesses an open avenue to acquire carbon credits on a long-term basis, which they would typically obtain through the over-the-counter market.
We have received numerous encouraging responses and are currently working on expanding our list of available options. We require a significant number of diverse funds, ranging from those focusing on nature preservation to those with a mix of different investments, as well as those specializing in carbon-capture technology. It is an emerging, inventive, and thrilling sector to be a part of. We believe it is a market opportunity worth keeping a close eye on in the long run.
EF: Key Themes For Stock Exchanges To Watch Out For
CD: There is a lack of agreement on the ideal approach to developing climate transition plans, signaling the importance of ongoing attention to this matter. Additionally, the notion of a fair transition is still in the process of being comprehended and clarified.
Greater cooperation, learning, and comprehension are essential at a worldwide level to align diverse regulations, classifications, and ESG ratings.
The main cause of this issue is the absence of consistent and unified information. Disconnected data obstructs making well-informed choices regarding investments. We have been a staunch advocate of the TCFD from the beginning and firmly support the ISSB's efforts in establishing worldwide sustainability reporting guidelines, which expand on the TCFD model. In 2022, we released a policy document urging policymakers to implement disclosure regulations in line with the ISSB's standards across all sectors of the economy by 2025.
One more topic that is captivating is the variety of life and the environment. This matter is currently being discussed in boardrooms and conversations with individuals and companies who have a vested interest, as it is closely connected to the issue of climate change. The Taskforce on Nature-related Financial Disclosures (TNFD) is nearing completion and is expected to establish a worldwide benchmark. However, it is crucial for it to be comprehended more effectively, both in terms of its relationship with trading activities and the collection of relevant data.
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