Listed companies should prepare for the climate transition

With COP26 underway, it is clear we all need to take decisive action. The future health of our planet cannot be protected unless we transform our understanding of the costs of how we live, how we move, how we do business and fundamentally, how we consume.

Claire Dorrian is Head of Sustainable Finance, Capital Markets, LSEG:

As a global leader in sustainable finance, the London Stock Exchange has a key responsibility and role to play in this evolution and we have taken active steps to do so. We have a long way to go to address the climate emergency and avoid the devastating scenarios set out by the International Panel on Climate Change. One of the challenges preventing the financial sector moving faster to address climate change has been access to the right data.

Markets thrive on information; it drives decision-making day in and day out. Yet, among the 4,000 largest global listed companies in the FTSE All World index, only 43 per cent publish emissions data. Fewer still disclose, or set, emissions reduction targets. Compounding this, a myriad of climate reporting standards has created unintended consequences, inefficiencies and placed a significant burden on issuers.

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Investors need consistent, comparable and comprehensive information using the same cross-border reporting framework. This critical foundation will drive action and enable investors to shift the trillions of dollars needed to facilitate the climate transition. But we don’t have long to get this right. Financing is a critical stage in a sequence of activities that will lower greenhouse gases and the bulk of financing will need to happen this decade.

The capital markets can meet this challenge, providing the most global, most scalable and most dynamic mechanism of bringing together those who have capital with those who need capital.

Just this year, companies involved in the development of the next generation of sustainable battery solutions, the advancement of the circular economy and sustainable fuel sources such as clean hydrogen have all accessed the UK public markets to fund their growth.

Recognising the need for globally consistent standards, LSEG CEO David Schwimmer launched an initiative with Mark Carney, UN special envoy for climate and finance, to ask stock exchanges from around the world to join a collaborative effort to drive globally consistent climate reporting. The initiative encourages issuers to adopt the Task Force for Climate-related

Financial Disclosures (TCFD), which LSEG has backed since its launch in 2017.

In October, the London Stock Exchange became the first exchange to issue reporting guidance tailored to the UK’s regulatory and policy environment for public companies. The framework will empower companies to better understand the climate reporting landscape and investors to shift portfolios to align with climate goals, or use their stewardship responsibilities to engage directly with the companies they invest in.

But listed companies also need to better understand how they are assessed by global investors. That is why we have also launched a Climate Governance Score based on methodology from the Transition Pathway Initiative (TPI), which is supported by investors with a combined $40 trillion of assets under management or advisement.

FTSE Russell are the data partner to TPI and by utilising their data model we are able to provide scores to over 400 companies listed on the London Stock Exchange’s Main Market to understand the key climate metrics that investors are focused on; identify areas for improvement; and assess their performance against industry peers.

While many FTSE 100 companies have already taken a leadership position by committing to net zero by 2050 and before, the London Stock Exchange is home to companies at varying stages of the climate transition. It’s vital that we encourage and support those issuers’ transition journeys.

The London Stock Exchange has over centuries evolved to face the challenges of the day. I am confident we can and should play a leading role in facing this climate challenge today, continuing to evolve our ecosystem to meet the needs of the natural ecosystem.