The transition to a low-carbon or ‘net zero’ economy is set to become one of the defining issues of the twenty-first century.
The scientific community has clearly set out the risks, and many policymakers and regulators are now taking action. Increasingly many companies and institutional investors recognise the risks posed by climate change and the rationale for strong action has never been clearer. Sitting at the heart of the world’s financial markets, London Stock Exchange Group (LSEG) is well positioned to support the global transition to a sustainable low-carbon economy.
Just recently the FCA set our proposals designed to improve the climate change disclosures for companies and other issuers, building on previous work of the Financial Stability Board’s (FSB) Taskforce on Climate Related Financial Disclosure and the UK Government’s streamlined Energy and Carbon Reporting Framework.
The Governor of the Bank of England, Mark Carney, said in a speech this month that “firms that align their business models to the transition to a net zero world will be rewarded handsomely. Those that fail to adapt will cease to exist”. Both highlight the environmental and commercial imperatives of sustainable business models and investment.
With an estimated $30 trillion in assets under management now implementing sustainable investment strategies, investors around the globe are increasingly focused on sustainability. This figure is set to increase, with investment in Environmental, Social and Governance (ESG) based strategies growing by 20 per cent annually.
To support the transition to a sustainable low-carbon economy, London Stock Exchange recently launched two new initiatives on its markets: the Green Economy Mark for equities and the Sustainable Bond Market (SBM). Together they are designed to support issuers, companies or investment funds, to raise sustainable capital and demonstrate their credentials.
London Stock Exchange’s Green Economy Mark recognises companies and investment funds listed on the Main Market and AIM that derive 50 per cent or more of their total annual revenues from products and services that contribute to the global green economy so called ‘Green Revenues’.
The 50 per cent threshold is important because it captures not just the ‘pure play’ issuers that immediately come to mind, in fields like renewable energy and waste management, but a wide range of issuers contributing to environmental solutions.
The 74 equities that have received the mark include business across sectors, from manufacturing to transport, agriculture, chemicals and financials. By raising their visibility and profile we aim to drive awareness of the breadth of the green economy.
The Green Revenues data comes from FTSE Russell and is being used as a factor by increasing numbers of investors to increase their investments in green industry companies as part of an approach to mitigate investment risks from climate change.
Our second initiative, the Sustainable Bond Market builds upon the success of London Stock Exchange’s Green Bond Segment, the first of its kind from a global exchange when launched in 2015. To the existing Green Bond Segment, we’ve added dedicated segments for social and sustainability bonds.
These new segments further enable investors to distinguish between different types of sustainable bonds, based on independently verified frameworks and use of proceeds.
David Harris, head of sustainable business at LSEG