Stock exchanges across the world, in both developed and emerging markets, are increasingly at the forefront in developing sustainability initiatives, according to a new report.
EIRIS, a global provider of research into corporate environmental, social and governance (ESG) performance, interviewed 11 stock exchanges for the report.
Stephen Hine, head of responsible investment development, said, “The insights shared by stock exchanges in this report are an excellent resource for other exchanges seeking to implement sustainability initiatives for the first time, or those trying to make existing initiatives more effective.”
Whilst one of the motivations for using sustainable initiatives identified by the participating stock exchanges was to improve the ESG performance of companies listed on their exchanges, it wasn’t the only reason.
Encouraging and helping investors to engage with companies on sustainability issues; identifying themselves in the marketplace as committed to sustainability; and drawing on the latest research to support the link between long-term financial performance and ESG issues were also highlighted.
A representative from the New York Stock Exchange (NYSE) said, “You’ve got to get your own house in order first, to make sure that you as a company are doing things right, in terms of reporting.
“We’re the only global exchange group that is carbon neutral, and we’re very proud of that […] but ultimately your larger impact is going to be within your network of companies.”
One of the challenges highlighted by the interviewees has been the financial investment required and the return available for sustainability initiatives. Whilst the proportion of the global investment market investing sustainably has grown rapidly, it remains a relatively small percentage with many mainstream investors yet to implement sustainable policies.
According to one stock exchange, there is a fine balance between a model that can have the maximum impact whilst in a cost constrained environment.
In smaller exchanges there are also challenges around creating an index that is sufficiently differentiated from main indices.
Hine added, “Whilst there will be challenges, they are surmountable. Through their key position in the financial ecosystem stock exchanges can provide powerful encouragement to sustainable, and the benefits for their sustainability initiatives will be for companies, investors and society as a whole.”
In order to drive sustainability further within stock exchanges EIRIS recommends that they engage with both companies and investors to highlight the long-term benefit of companies with a good ESG performance and explore ways of working together to overcome challenges.