Bermuda Stock Exchange launches ESG initiative

By: Greg Wojciechowski, President & Chief Executive Officer, Bermuda Stock Exchange (BSX) May 2019

The Bermuda Stock Exchange (BSX) has launched an Environmental, Social and Governance (ESG) initiative in line with the World Federation of Exchanges’ (WFE) Sustainability Principles, and is dedicating ESG as a priority in 2019 with the aim to empower sustainable and responsible growth for its member companies, listings and the wider community.

The BSX has embraced the WFE’s five Sustainability Principles: to educate participants in the exchange ecosystem about the importance of sustainability issues; to promote the enhanced availability of investor-relevant, decision-useful ESG information; to actively engage with stakeholders to advance the sustainable finance agenda; provide markets and products that support the scaling-up of sustainable finance and reorientation of financial flows; and to establish effective internal governance and operational processes and policies to support their sustainability efforts.

Stock exchanges are at the intersection between capital market participants. Their increasing responsibility to ensure business practices are geared toward positive ESG practices makes them ideally positioned to assist and improve performance on ESG disclosure, so that participants are better able to benefit from the ever-increasing flow of investment being directed towards the sustainable economy. With 250 market infrastructure providers, 48,000 listed companies and $70.2 trillion in equity market capitalisation, WFE members have the size and bandwidth to effect real change in all aspects of ESG.

Although these are early days for the BSX, we are committed to the process of encouraging partnerships and adoption of best practice in the area of responsible investment for sustainable development. While we are formalising an action plan to develop a sustainable stock exchange, we are bolstered by the knowledge that Bermuda has long been the home to early adopters of innovative solutions to natural catastrophe risk, enhancing resilience and mitigating risk throughout the globe.

The BSX is the world’s leading exchange for the listing of Insurance-Linked Securities (ILS), which are acknowledged as sustainable development investments. Bermuda's issuance leads the world in this sector and of the 950 securities listed on the BSX, ILS comprises 330 listed issuers with $32.7 billion in market capital outstanding. As investors look to grow their holdings in asset classes linked to social and responsible investments, this creates an increased pool of investors in these securities. These investors are helping to narrow the 'protection gap' between uninsured and underinsured risks.

Pension fund investors from several jurisdictions have highlighted the social and environmental aspect of ILS and catastrophe bonds as they provide financing and liquidity when natural disasters strike. ILS, a non-correlated asset class, is also recognised as being a sustainable investment according to the United Nations’ Sustainable Development Goals (SDGs) because it helps build resilience to disasters and climate change. As the world leader in ILS, Bermuda will play an increasingly important role in assisting communities around the world to adapt and recover from natural disasters, climate change and its resulting impact on vulnerable communities. Many of the BSX’s listings, especially in the ILS sector, are well advanced in developing products that move the sustainable finance agenda forward. In the evolution of what is known in the insurance industry as 'convergence' of the capital markets and insurance markets, alternative reinsurance and third-party capital have contributed to innovative and technology-embracing advances in the industry. The topic of climate change is of tremendous relevance and impactful to risk assessment expertise which Bermuda is known for.

Forward thinking ILS fund managers, hedge funds and asset managers based in Bermuda embraced ESG a long time ago; they have cemented credentials, have impressive track-records and remain committed to a high-impact sustainable agenda.

While Bermuda itself is susceptible to natural disasters such as hurricanes, it is no stranger to protecting exposure through its effective infrastructure, conservation of its shores and resilient building codes. Bermuda was the natural home for the Ocean Risk Summit last year, with collaboration of business, government and science to discuss responses to unprecedented changes occurring in the ocean.

In Bermuda, we believe we are uniquely positioned to enhance dialogue on the promotion of sustainable products and services as a respected and dependable jurisdiction, recognised for our corporate governance, solvency standards and effective regulation for the creation of innovative listed structures.

The Bermuda Stock Exchange is also embracing 'greening' its Hamilton headquarters and taking steps to improve energy efficiency, cutting down on waste, encouraging recycling and adopting a greener footprint.

Bermuda has been a trusted incubator for financial instruments that have helped investors, shareholders, governments and firms around the world manage their risks securely and cost-effectively for more than 70 years, and the island will undoubtedly continue to make a big impact on all aspects of ESG.