As 2017 draws to a close it is worth recognising the shift in gear in implementing commitments to transition to a low carbon or ‘green’ economy and the UK’s leading role in this transformation.
To mark two years since the landmark Paris climate accord, world leaders and philanthropists gathered again last week to attend the One Planet summit. They were focused on practical ways to continue the fight against climate change. And what was evident is the critical role of private financing in supporting this change.
As a UN Sustainable Stock Exchange, with more international companies on our markets, more internationally focused assets under management and a thriving international investor community, London Stock Exchange is in the leading position to support the global low carbon transition.
We were the first global exchange to launch a bond market dedicated to green bonds and our markets have become home to world first green bond listings, from Finland to China, India, Japan and the Middle East. The proceeds of these bonds are used to finance ‘green projects’ such as wind, hydro-electric and solar power and electric vehicles.
Indeed, 2017 has been a stellar year for green bond listings on London Stock Exchange. Up to the beginning of December 2017, there had been a 64 per cent growth in the number of green bonds compared with 2016 and a 65 per cent increase in money raised. And November in itself was a record month, with seven green bonds raising over $3.2bn.
What we’re seeing is that some of the fastest growing economies of the world especially India and China have a vital need to finance sustainable economic growth and investment in infrastructure and they are working with partners in the UK to fund this growth.
Rule changes are allowing emerging market governments and corporates to raise finance offshore and denominated in their own currency to eliminate currency exposure. London Stock Exchange has become the leading international market for offshore rupee-denominated debt, masala bonds and offshore renminbi-denominated debt, dim sum bonds.
Only last week, Indian Railway Finance Corporation issued a $500m green bond on our markets, becoming the sixth green bond by an Indian issuer in London. It joined days after inaugural green bond listings from Australian bank, Westpac, Japanese giant, Toyota and Finnish electricity grid operator, Fingrid.
And awareness and appetite is increasing across the developed markets too. In August 2017, UK energy company SSE issued the largest ever green bond by a UK company, to finance renewable energy on the North coast of Scotland.
And last month, Barclays Bank became the first UK bank to issue a green bond. It was a pioneering transaction, with the proceeds being used to back green mortgages. An Energy Performance Certificate is required when a house is bought or rented in the UK to show how environmentally friendly the property is. Barclays used this data to identify green mortgages and raised a bond against this publicly available information.
But green investment isn’t limited to green bonds. There are 37 green companies listed on our markets, a combination of renewable funds, alternative fuel companies and alternative electricity companies that in total have raised $7.3bn.
With the development of the green equity and bond markets comes the need to further increase transparency. Through FTSE Russell, the LSE Group’s index, analytics and data provider, we are providing issuers with more efficient tools to report their sustainable initiatives, and investors with a comprehensive product to assess a wide range of financial instruments.
We are working with some of the world’s largest asset managers to create bespoke indices.
A pioneering launch this year was the new FTSE Blossom Japan Index, constructed using FTSE Russell’s Environmental Social and Governance (ESG) Ratings & data model. It’s an innovative tool that allows investors to understand a company’s exposure to, and management of, ESG issues. The index was selected by the Government Pension Investment Fund of Japan, the largest pension fund in the world with over $1.3 trillion in assets.
To end, this year also saw the Group launch guidance setting out recommendations for good practice in ESG reporting for companies. It was a response to demand from investors for a more consistent approach to ESG reporting, which is now a core part of the investment decision process.
This new and significant business could go anywhere around the world but the UK is leading the way. This is not just good for the country in terms of more business but also in terms of improving links with the world’s fastest growing economies. To those who think Brexit would put all this at risk, 2017’s green activity across LSEG speaks for itself.
More still needs to be done to accelerate growth and push more private finance into green investment initiatives but London Stock Exchange Group, together with the support of UK Government and business, is in prime position to take the same lead we have done for hundreds of years: enabling finance for companies around the world as they approach the next great generational industrial shift – the transition to the low carbon economy.