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Exchanges with impact
Stock exchanges increasingly guiding markets on sustainability reporting. A stock exchange is often seen as only a market for trading stocks – a virtual point where buyer meets seller – but its role in ensuring the proper functioning of the market where it operates involves much more than providing the platform where stocks are bought and sold. Historically, stock exchanges have educated and trained both business and investors on a series of topics from listing rules and investment tools to regulation and product development.
Stock exchanges are the intersection between issuers, investors, capital market regulators, and policy makers, and as such they are constantly evaluating new demands from investors and policy makers and translating them to issuers. As the sustainability challenges facing capital markets and the corporate sector evolve, stock exchanges are adapting, and guiding both issuers and investors in this process by facilitating the information flow between them. One of those areas of guidance is sustainability reporting.
At one time, an investor’s toolbox for analysing investment opportunities contained only the company’s financial bottom line, usually reported in a quarterly manner, making capital markets inherently short-sighted and therefore misaligned with financing needs of sustainable development. But now, shareholders, fund managers and other capital market players are expanding their appraisals of a company by also evaluating its environmental and social practices.
In some markets investors are demanding new information on the sustainability activities of a company, and in others the move towards increased environmental, social and governance (ESG) disclosure is led by other market players. In all markets, stock exchanges have a key role to play. Led by a United Nations initiative, stock exchanges are fulfilling that role by guiding their issuers on how to disclose ESG information.
The United Nations Sustainable Stock Exchanges (SSE) initiative encourages stock exchanges to provide guidance to their issuers on ESG reporting and aids stock exchanges in doing so by providing a template that can be adapted to their local market, the “Model Guidance on Reporting ESG Information to Investors: A Voluntary Tool For Stock Exchanges to Guide Issuers.”
In September 2015, when the SSE launched its Model Guidance for exchanges, less than one third of stock exchanges around the world were providing guidance to issuers on reporting ESG information. As a result of the SSE Model Guidance campaign and their collaborative work with stock exchanges, the number of exchanges with sustainability reporting guidance has more than doubled (see figure 1).
The SSE is continuing its campaign and is working with its partners with the end goal of all stock exchanges providing guidance on reporting their ESG activities.
Figure 1: Number of Stock Exchanges with Guidance on ESG Disclosure
Anthony Miller is the Focal Point for Corporate Social Responsibility within the Investment and Enterprise Division of the United Nations Conference on Trade and Development (UNCTAD).
He has managed the Sustainable Stock Exchanges initiative since its launch by UN Secretary General in 2009. In 2011, the initiative was named by Forbes magazine as one of the “world’s best sustainability ideas” and by 2016 it included over 60 stock exchanges in the world representing over 70% of global listed equity markets.
Dr. Miller is a specialist on CSR, corporate governance and responsible investment, with particular emphasis on how these issues impact developing countries. He is a regular contributor to UNCTAD’s flagship World Investment Report and for over 10 years an annual guest lecturer on CSR and responsible investment at the Cambridge Centre for Development Studies. He holds an MPhil and PhD in Development Studies from the University of Cambridge.
UNEP FI Regional Roundtables on Sustainable Finance
UNEP FI is establishing Regional Roundtables to provide an opportunity for members and actors in the sustainable finance community to come together locally to discuss the latest trends and innovations, and share good practice. 2017 marks UNEP FI’s 25th anniversary, and in this landmark year, our first ever Regional Roundtables will be the focus of our celebrations.
September-December 2017 - Argentina, USA, Switzerland, South Africa and Japan. UNEP FI is establishing Regional Roundtables to provide an opportunity for members and actors in the sustainable finance community to come together locally to discuss the latest trends and innovations, and share good practice. Building on over two decades of successful Global Roundtables, these regional events are designed to create rich opportunities for UNEP FI members to connect with one another and to raise awareness of sustainable finance work in progress across banking, investment, and insurance. The Roudtable events will take place in Buenos Aires 5-6 September, New York 18-20 September, Geneva 16-18 October, Johannesburg 27-29 November and Tokyo 11-12 December.
Get more information on how to register for UNEP FI here
"Nigerian power sector knows what to do, needs to stand together and make it happen" says Future Energy Nigeria director
"I’m excited about Nigeria’s energy future, Nigeria IS the future" says a confident Ade Yesufu, who is heading up the Future Energy Nigeria initiative that is taking place in Lagos from 7-8 November.
As the Global Business Director for the upcoming Future Energy Nigeria, an event that has a solid reputation as a longstanding, high-level gathering place for the region’s power sector, Ade is currently in Nigeria to meet the country’s decision makers and pave the way for another ground-breaking power pow-wow in November.
"We have to restore investor confidence"
Ade Yesufu explains: "I don’t see the current recession as a reason to be negative or even cautious about Nigeria’s economic future. If anything, it has focused Government and industry alike to make sure we get the basics right to stimulate much-needed growth and we need a reliable and affordable power supply to do that. The Federal Government’s Nigerian Power Sector Recovery Programme is an important message to the rest of the world that Nigeria is planning significant improvements towards achieving structural economic change with a more diversified and inclusive economy. To me, this creates an important foundation to showcase the enormous business and investment opportunities that the sector provides and I cannot help but be very excited about that."
He adds: "we all know that there is a lot of work to do, we have to restore investor confidence, but we are ready to get everyone together and to make sure we showcase the myriad of opportunities in the sector; from gas to renewables, from generation to distribution and from actual building projects to providing specialised services. The power sector knows what to do, needs to stand together and make it happen. Nigeria is ready!"
New brand – same, innovative event
Formerly known as the West African Power Industry Convention or WAPIC, which was a firm, favourite fixture on the region’s power calendar for the last 13 years, Future Energy Nigeria, with the support of the Federal Ministry of Power, Works and Housing, Transmission Company of Nigeria, Nigeria Electricity Regulatory Commission, Distribution Companies and prominent Generation companies, will once again host many of the country’s leading energy decision makers from 7-8 November 2017 at the Eko Hotel & Suite Convention Centre in Lagos, Nigeria.
The rebranded Future Energy Nigeria will focus on the bold turnaround plan of the Nigerian government, known as the Power Sector Recovery Program, which is aimed at restoring investor confidence in the sector following reported problems in the country’s electricity market. U$D7.6-billion has been earmarked for this recovery process that the government developed in partnership with the World Bank.
The event is recognised as being a distinctive gathering of stakeholders within the power value chain which includes governments, power generation companies, transmission and distribution companies, off takers, developers, investors, equipment manufacturers and providers, technology providers, EPCs, legal and consulting firms all with a shared goal of supporting the on-going implementation of finding lasting solutions to Nigeria’s energy challenges. Co-located to the event is the Oil & Gas Council’s Nigeria Assembly.
Some confirmed conference speaker highlights:
- Lazarus Angbazo, CEO, Energy Connections Business, GE: Sub-Saharan Africa, Nigeria
- Hon. (Princess) Gloria Akobundu, CEO and National Coordinator, NEPAD, Nigeria
- Onyeche Tifashe, CEO, Siemens, Nigeria
- Akinwole Omoboriowo, CEO, Genesis Energy, Nigeria
- Patrick O. Okigbo III, Principal Partner, Nextier, Nigeria
- Sunkanmi Olowo, Head SME Banking, Ecobank, Nigeria
- Bart Nnaji, CEO, Geometric Power, Nigeria
- Joy Ogaji, Executive Secretary, Association of Power Generation Companies, Nigeria
- Joel Abrams, Managing Director, Nigeria Solar Capital Partners, Nigeria
- Olumide Noah Obademi, CEO, Afam Power PLC, Nigeria
- Nicholas Okafor, Partner, Udo Udoma & Belo-Osagie, Nigeria
- Olubunmi Peters, Executive Vice Chairman, North South Power Shiroro, Nigeria
- Segun Adaju, President, Renewable Energy Association of Nigeria, Nigeria
- Engr. Faruk Yabo, Director Renewable Energy & Energy Efficiency, FMoPWH
The 14th edition of the event once again enjoys widespread support from the industry with Lucy Electric, a global secondary distribution leader in the electricity sector, and SkipperSeil Limited already confirmed as platinum sponsors, while Genesis and Jubaili Bros are gold sponsors and Conlog, Landis+Gyr, Hexing and Vodacom are silver sponsors.
Future Energy Nigeria is organised by Spintelligent, a multi-award-winning Cape Town-based exhibition and conference producer across the continent in the infrastructure, real estate, energy, mining, agriculture and education sectors. Other well-known events by Spintelligent include African Utility Week, Future Energy East Africa (formerly EAPIC), Future Energy Central Africa (formerly iPAD Cameroon), Future Energy Uganda, Agritech Expo Zambia, Kenya Mining Forum, Nigeria Mining Week and DRC Mining Week. Spintelligent is part of the UK-based Clarion Events Group.
Future Energy Nigeria dates and location:
Strategic conference: 7-8 November 2017
Venue: Eko Hotel & Suite Convention Centre, Lagos, Nigeria.
EXECUTIVE PERSPECTIVE: The Secret Life of Green Finance
Simon Zadek is writing in his personal capacity, and currently serves as the senior advisor on finance in Executive Office of the Secretary General, is co-Director of the UN Environment’s Inquiry into the Design of a Sustainable Financial System, and is Visiting Professor at the Singapore Management University.
Green finance’s meteoric rise has been a remarkable feature of the contemporary global financial landscape. From London to Nairobi, and Sao Paulo to Singapore, green finance has become the currency of high profile advocacy, policy and regulatory developments and increasingly market practice.
The G20’s embrace of green finance as a legitimate topic for finance ministers and central bank governors has catalysed action across the world, from the green finance work being led by the Reserve Bank of India to the European Commission’s High Level Expert Group on Sustainable Finance. The G7 has highlighted the growing focus of the world’s major financial centres on green finance as a basis for product innovation and competitiveness, such as the City of London’s Green Finance Initiative. And the darling of green finance, green bonds, has seen a ten fold increase in annual issuance over the last five years.
The logic of green finance’s rise is undeniable. Environmental challenges have impacted markets and returns, through droughts and other natural disasters, volatility in food and other commodity prices, and growing liability risks as the more stringent enforcement of environmental and climate-related regulations become a global norm. Climate change necessitates accelerated action by the world’s largest emitters, both to keep global temperature rises below 2 degrees, and to more effectively manage investor risks.
Beyond downside risks, environmental stewardship and resilience has become a source of value. Renewables have transitioned from a side-show to the main game across global energy markets, stranding along the way carbon intensive assets. Electric vehicle and battery technology threatens to overturn the all-powerful auto industry and reward investors who have backed businesses at the nexus of environmental concerns, policy responses, and breakthrough technologies.
Financial regulators have woken up to systemic risks in such a transition, especially those linked to climate, requiring the financial community to demonstrate their will and capability to manage this new generation of risks and report accordingly.
History’s impeccable logic alone, however, rarely guarantees the right response. People make a difference, and the secret life of green finance is a disparate band of people who have made it their mission to green the global financial system. Dr Rahman, for example, placed Bangladesh on the global map by championing the development role of central banks in advancing financial inclusion and green finance.
Dr Ndung’u, likewise, as Kenya’s central bank governor, was a key player in turning Kenya into a global leader in digital finance, which now underpins the country’s growing eco-system of green financing innovations connecting mobile payment platforms, distributed solar and now also crowd-sourcing, block chain and crypto-currencies. Muliaman Hadad, until recently Commissioner of the Indonesian Financial Regulatory Authority, has championed what was arguably the world’s first ‘sustainable finance roadmap’. And in Brazil, Murilo Portugal, president of the powerful bankers association, Febraban, has championed the greening of the country’s banking community.
Further north, Mark Carney, Bank of England’s charismatic governor, delivered a world first in championing a prudential review of climate risks to the UK’s all-important insurance sector, and then in his role as Chair of the Financial Stability Board established the Task Force on Climate Related Risk Disclosure. Meanwhile, in another part of London, Mark Campanale led the charge with the Climate Tracker Initiative in effectively inventing and then globalising the narrative about climate-related stranded assets, just as ‘down-under’ Sean Kidney has worked tirelessly to advance the cause of green bonds around the world.
Across the English Channel, the Dutch pensions regulator, Frank Elderson, along with researcher and civil society activist Rens Tilburg, mobilised the country’s pension industry alongside its banks and insurance sector in advancing a national sustainable finance dialogue and strategy. And across the pond, it would be wrong to ignore the contributions made by such luminaries as Mary Shapiro 29th Chair of the U.S. Securities and Exchange Commission, Mindy Lubbers as inveterate green investor campaigner, and Al Gore in his role as co-founder and Chair of the sustainability-minded Generation Investment Management, along with co-founder David Blood.
Yet it has been in China that the most ambitious game plan has been hatched and progressed to green the country’s rapidly developing financial system. Early leadership came in the form of Yi Yanfei, a modest champion buried deep in the China Banking Regulatory Commission, in advancing the Green Credit Guidelines, encouraged and ably supported by Rachel Kyte’s team when she was at the World Bank. More recently, however, leadership has come from Dr Ma, without doubt one of the world’s more unusual central bank chief economists.
Catalysed into action by China’s destructive air pollution, Ma Jun advanced first an ambitious domestic green finance initiative, working with a UN-based initiative launched by Achim Steiner, then head of the UN Environment Program, making full use of the central bank’s convening and signalling power. Then at the IMF Annual Meetings in Lima in 2015, his boss, Deputy Governor Yi Gang, announced that China would take the topic of green finance to the G20 under its Presidency in 2016, a move that has catalysed action on green finance across the G20 and elsewhere.
Leadership counts, all the more so when the need for transition is so urgent, and the scale of change required is so great. Dragging a reluctant mainstream into the future, requires the kind of inspiration and persistence that is too often absent from either corporate or public technocrats. Such leadership is, however, more of a relay race than a marathon.
The success of today’s leaders depends on the unsung efforts of their predecessors, just as tomorrow’s efforts will be taken forward by others. More recently, for example, key leadership has come from that most unlikely source, central banks and financial regulators, reflecting their broader rise to power over the last decade. Going forward, other sources of leadership are likely to become more important, such as the world of digital finance and its intersection with big data, artificial intelligence and the internet of things.
This article first appeared in Thomas Reuters
Exchanges Play a Crucial Role in Developing the Sustainable Finance Market
Stock exchanges play a crucial role as an intermediary between investors and issuers, but their role in the sustainable finance market – as platform and infrastructure providers, as facilitators of cross-market standards development, and as educators bringing visibility to new asset classes – is so much wider than that. We speak with Robert Scharfe, CEO of the Luxembourg Stock Exchange, a leader in sustainable finance with over half of the world’s green bonds listed on its exchange, on how to attract more investors and borrowers to the market.
Q. We have seen an impressive EM rally this year, and some of that has to do with China’s better-than-expected performance. How would you assess the outlook for China and emerging markets for the next 12 months? Where do you see the main risks and best prospects?
A. China, as one of the largest economies in the world, is of course very influential in determining how the rest of the world economy performs. The most recent news – that China’s economy has grown more quickly than anticipated, 6.9% in Q1 2017, reaching an estimated annual growth of 6.4% – is significant. Coupled with improving activity and job growth in the US and Europe, this is good news for emerging markets. Globally, one could say the outlook is cautiously positive.
There are of course a number of caveats and key factors to consider here. China needs to ensure that growing at the current rate is not harmful to the economy itself in broad societal terms, which is part of the reason why sustainability – and the sustainable finance market – has become so immensely important there.
In terms of risks, we still see quantitative easing affecting market prices, and it is likely we will see this come back to the fore as the world’s central banks look to unwind or reverse their asset purchases. Uncertainties around the US Administration, and a possible rise in protectionism around US imports, could also have a significant influence on global markets.
Overall, the global picture is cautiously positive, but we need to manage potential interest rate hikes and the unwinding of major QE programmes around the world to ensure distortions can be minimized.
Q. The first ever green bond, the "Climate Awareness Bond" was listed in Luxembourg in 2007. How has green financing evolved since then? What has the Exchange done to promote and develop these kinds of instruments?
A. The European Investment Bank took a lead in this space with the first Climate Awareness Bond, but the timing was somewhat unfortunate to an extent because the global financial crisis that emerged in 2007 and 2008 largely put a halt to the development of the green bond market. Governments were too busy saving the world economy from collapsing, quite frankly. That said, it became clear by the Paris climate talks in 2015 that the sustainable finance agenda needed to move forward, and public consensus around the importance of sustainability as a broad concept – in energy, finance, and general corporate ethos – was gaining momentum. At the same time, investors globally, for a variety of reasons, are increasingly looking for more transparency in how their money was being used by recipients.
Now, I get the sense we are in the midst of a protracted education process across the market: investors want to invest in initiatives that have a strong ESG angle, but want to be sure that they can still generate adequate returns; corporate and public-sector entities want to access new pools of liquidity, but want to ensure they can generate both internal and external benefits.
Government-backed banks and multilateral development banks have played a leading role in the development of this market, but we need the private sector to enter the picture – not just energy companies, but any entity willing to take a fresh look at their supply chain and make changes to address their carbon footprint through targeted investments. The onus is also on investors. Investors have enormous purchasing power here, given the sheer amount of institutional money they manage, and they are in a sense the guarantor that capital simply won’t be available to just any issuer or borrower unconditionally. That’s what will push this market forward.
Q. The Luxemburg Stock Exchange has signed an agreement to launch a green bond index with the Shenzhen Stock Exchange and Shanghai Stock Exchange, which simultaneously displays green bond quotes in China and Europe. What is the primary purpose of this programme and how can it be replicated in other geographies?
A. When this market started 10 years ago with the first Climate Awareness Bond and eventually, the first green bond, nobody was paying much attention to it. It was only following the 2015 Paris Climate Agreement – COP21 – that we found an agreement that could supplant previous pacts, like the Kyoto Protocol or the Copenhagen agreement, and facilitate the growth of the market. Since 2015, the growth has been exponential, despite the fact that the size of the market is still relatively small – less than 1% of the global debt market.
Within that context, we decided to launch the world’s first dedicated green exchange, a platform for green bonds that has since expanded to social and sustainable bonds, and is open to a range of instruments and indexes. Looking at the overall market, we cover more than 50% of global listed green bonds. There are also large domestic markets, like China – by far the largest local currency green bond market globally – that are strategically important to partner with in order to heighten the visibility of these assets. Both the Shanghai and Shenzhen Stock Exchanges have indexes that represent the performance of labelled and unlabelled green securities in China. The objective is to open this market further to foreign investors, and in order to do that you need to promote these indexes domestically within Shanghai and Shenzhen, and abroad, which is what drove our partnership with both of these exchanges. The market can use these indexes to set up dedicated investment products, like ETFs, or, through the new Bond Connect programme, make Chinese local currency green bonds available to foreign investors. What we are doing here is bridging the gap between the local green bond market and international investors, and helping to make it more accessible to investors. Partnerships like these are especially important in an environment where the US is retrenching from its climate change mitigation commitments, and creates added scope for Europe and China to work more closely together to move down the path decided at COP21.
Q. How has LGX helped to expand the universe of sustainable finance?
A. Exchanges in many ways offer the critical infrastructure, indeed a meeting platform for investors and issuers, and we need to make sure that we create a level of transparency that makes both sides comfortable. This means that both need to be able to access the full stock of information available in order to make informed decisions. That’s where stock exchanges have a tremendous role to play.
The second role is heavy linked to education. We can inform the market about standards in a way that helps issuers and investors understand this segment; we can show the nuances between issuers of different origin by making data available to the market; and we can bring visibility to new and exciting sustainability instruments. How do we create leverage in all of that? One initiative, the Sustainable Stock Exchanges Initiative - a United Nations initiative which works with over 65 exchanges worldwide - is working to develop guidance to listed companies around the world in order to promote sustainability in terms of environmental, social and corporate governance transparency. Exchanging best practices is extremely helpful in order to accelerate this movement, and very important for the creation of common standards – around reporting the impact of investments – in sustainable finance. These standards are what will enable investors to compare these investments in a common framework, and as such are of supreme importance. If we achieve this kind of alignment across the sector globally, investors can effectively choose what to invest into.
Q. Regulations play an important role in stimulating the market, by helping to support the creation of standards as well as incentivise the market. What are the major challenges from the regulatory perspective when dealing with green bonds?
A. If you look at the European or international regulatory landscape, most of this has evolved on the basis of standards that have been developed by the industry – like the Green Bond Principles, for instance. Industry self-regulation, so far, has worked tremendously well. We consider frameworks like the Green Bond Principles and the Climate Bonds Standard, developed by the Climate Bonds Initiative, as best practice in the market. In order to list or display bonds on our Exchange, bonds have to fit any of these frameworks – which means mandatory certification and reporting. In other words, we have become stricter than what the market is typically looking for, to the benefit of investors – who secure a second opinion and impact report – and issuers – which gain access to a wider pool of liquidity.
However, regulators can still play a role in helping to develop and shape these standards. If we want to see the market grow faster and further, we need a more robust framework going forward, which can mean creating standard definitions and terms of reference, as well as standard obligations related to publishing certain documents on a mandatory basis. Consider, for instance, Article 173 of France’s Climate Transition Law, which obliges institutional investors to display the carbon footprint of their investment portfolio. In this instance, regulators aren’t posing restrictions on the market – but by displaying this you create awareness and give investors important information to help facilitate the market. China’s regulators have also been very forward-thinking in this space; they have asked every issuer to display how proceeds are used to finance green initiatives within prospectus’ of conventional bonds as well as green bonds, which is a significant step forward. In this respect, China is leading the pack.
Regulators should also consider incentives to help boost the market. In any event, it’s less a question of using regulation to impose more work on issuers, but about the broader question on how one frames this market to entice both issuers and investors of moving in the same direction – and faster.
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