Financial markets’ key role in move to net zero

The G7 Summit in June 2021 called for an acceleration in investment towards climate change mitigation and adaptation, to meet the estimated $7 trillion annual investment needed to meet net-zero goals by 2030.

As companies adapt their business models and operations, support from public capital markets is crucial in mobilising sustainable finance efficiently.

London Stock Exchange’s recently published Green Economy Report highlights the green issuers on its markets and the shift towards low-carbon business models.

More than 100 equity issuers listed on London Stock Exchange currently hold the Green Economy Mark (GEM), which recognises issuers that generate more than 50 per cent of their revenues from green products and services.

This includes both new innovations and mature businesses, spanning industries such as hydrogen, graphene and battery technologies to promoting the circular economy in cardboard boxes and mobile phones.

The findings of the report show that £8.86bn in equity capital has been raised by GEM issuers in the two year period to March 31, 2021.

In aggregate, these stocks have also outperformed the FTSE All-Share Index by 5 per cent so far this year and have demonstrated greater levels of resilience to the Covid-19 pandemic than other industries.

When ranked by market capitalisation, the leading three UK regions are London, the Midlands and the North-West.

With a combined market capitalisation of more than £5bn six companies from Yorkshire & the Humber have the GEM, including sustainable waste management solutions company, Augean, Benchmark Holdings, which helps food producers to improve their sustainability and construction experts, Genuit Group and SIG.

As the transition to net-zero accelerates globally, it is important that companies are not only recognised for their contribution to positive environmental objectives, but that they also produce consistent, comparable and reliable sustainability data to showcase this.

This helps to ensure that investment and capital flows can be directed efficiently to aid sustainable innovations and investment strategies.

Investors can identify the percentage of their portfolio contributing to the low-carbon transition and monitor the climate-related risks and opportunities within their portfolios.

Companies can utilise clear and recognised frameworks to demonstrate their suitability for ESG funds and indexes.

As part of our efforts to drive action on climate change, London Stock Exchange expanded its Sustainable Bond Market (SBM) earlier this year with the launch of the first ever Transition Bond Segment.

This new segment allows issuers who have a corporate strategy or transition framework that is aligned to the Paris Agreement to list debt.

This not only enables companies in more carbon-intensive industries to raise the finance required to align their businesses with low-carbon operating models, but also shows investors how they aim to achieve this.

The sustainable bond market plays a critical role in attracting and directing capital to finance improved social and environmental outcomes.

According to data compiled by Refinitiv, sustainable finance bonds globally raised $551.6bn during the first half of 2021.

This includes a record $20.6bn raised by UK sustainable finance bonds. Further highlighting the growth of this market, 50 bonds admitted to SBM raised £16.1bn in the first half of 2021, surpassing the total raised in the whole of 2020.

Financial markets play a pivotal role in the transition to net zero. However, there still is more work to do.

Public markets need to continue to evolve and innovate to meet the requirements needed to drive investment in sustainable activity.

London Stock Exchange remains committed to supporting issuers and investors as we all journey to a net zero carbon economy.