CEO Letter - December 2023

This month’s CEO letter is written by Victoria Powell, the WFE’s Senior Manager, ESG.

It was a real pleasure to convene our members, policy makers and stakeholders at COP28, reflecting the importance that the WFE and its members place on promoting sustainability. Exchanges are in a truly unique position to support the transition to a sustainable economy, both as they work to support issuers – small and large; and secondly, deepening understanding and expanding transparency for investors of the importance of these issues.

We were honoured to have Tajinder Singh, Deputy Secretary General of IOSCO who, in his fireside chat with Nandini Sukumar, our CEO, outlined the importance of both public and private capital to finance the green transition, and the role of exchanges in establishing an ecosystem with information that is decision-useful and trustworthy.

Whilst some headlines suggested COP28 had fallen short of expectations, it was encouraging to see that the understanding and importance placed on ensuring a successful transition by the international financial-services industry is only gaining pace and is becoming more comprehensive in its approach.

These efforts include developing green equities, which encourage support for issuers who are focused on sustainability or transitioning effectively; to strengthening integrity in voluntary carbon markets and embracing transition planning, that will help all businesses and issuers improve their resiliency and help address their contribution to climate change, as well as providing an antidote to greenwashing for investors.

Whilst preparing the practical way forward through transition plans and evidencing real and measurable progress on these will be key, there was a new emphasis at COP28 in considering how better to integrate and plan for the social impacts of climate change and a new sustainable future in order to secure a more ‘Just Transition’ for all. A transition risk and opportunity which, if navigated effectively, will make our economies and markets more resilient.

Following the WFE’s recent consultation on principles and standards for green equities, Cesar Sanches from our member exchange, B3, chaired a panel to discuss what more could be done to increase trust and transparency and was joined by our fellow member exchange, Nasdaq. Panellists shared their experiences of establishing a green equity category of listed shares; the appetite in the market for these products; Samantha Sutcliffe from UBS noted how the increasing fears of greenwashing have significantly curtailed the willingness to be creative and ambitious in addressing climate change and hindered the desire to make this a key priority among issuers’ senior management, which is unfortunate given the increasing urgency of much-needed change. From the perspective of an issuer, Johanna Grönroos from Lamor, who will also share more in this edition of Focus, described how important it remains that funding for transitioning of existing activities continues. She also described how the rigorous process of gaining a green equity status, with its annual reviews that include assurances by third parties on their progress in delivering their transition plans, had been challenging, but of great benefit to businesses, sharpening their thinking and clarifying their strategy and priorities.

To kick off our discussion on how exchanges can contribute to effective voluntary carbon markets, we were also honoured to be joined by Rostin Behnam, Chairman of the CFTC and co-chair of IOSCO’s taskforce on carbon markets. Mr Behnam talked us through the newly developed defined set of good practices around VCM governance, currently open for a 90-day consultation period. He also spoke on the importance of public-private partnership for the transition and outlined the launch of work in this area by the CFTC. Our panellists were chaired by Owain Johnson, from our member exchange, the CME, and joined by fellow member exchanges Climate Impact X and SIX. Our VCM panel highlighted that we cannot expect that all countries have equal resources to undertake the net-zero journey on their own, therefore appropriate investment is needed and VCMs have a crucial part to play in funding this gap. The panel welcomed the work of IOSCO and the launch of its consultation and the work by the CFTC, however, as Frederick Teo from Gen Zero also noted, that given the urgency of the climate crisis, we cannot wait until rules and standards governing VCMs are clear and that we must continue as an industry to take steps to build integrity as evidenced by the work of the ICVCM in developing principles and frameworks for carbon markets (represented on the panel by Co Chair Chris Leeds from Standard Chartered). On the topic of VCM convergence, the panellists noted that this can mean many things, more importantly they agreed on the need to harmonise rules that protect investors.

Finally, I had the pleasure of chairing an accomplished panel of experts on the role of exchanges in securing a ‘Just Transition’. It was real pleasure to be joined by experts from the LSE’s Grantham Institute, the EBRD, the COO of our member, the Johannesburg Stock Exchange, and the largest asset manager in Brazil, BB Asset Management. They noted that it is important to consider the social implications of a green transition - especially in economies that are dependent on sectors that are not ‘green’ which are being subjected to the same objectives as countries that have previously industrialised without the boundaries of ESG factors.

Our ‘Just Transition’ panel spoke about how the foundations of the transition must come from good public policy, but shared that in addition to public policy, exchanges’ and issuers’ own transition plans could helpfully reflect the implications of a ‘Just Transition’ in shaping the strategy taken. We also discussed issues such as the reskilling of labour from industries which are being closed, or for example, in considering the protection of workers in mining of key resources needed for the transition. The panel also explored how the risks of climate change pose a disproportionately negative impact on women. This provided the opportunity to explore the practical ways that an exchange can address some of the social issues of a ‘Just Transition’. In particular, BB Asset Management, shared the work done by the B3 exchange to launch a gender and inclusivity index, and how the demand had spurred an ETF to be launched the following year.

Whilst we leave COP 28 with much still to achieve, as one panellist reminded us, it is important to remember that sustainability is a practice and ethos which will require us to adapt; and by doing so, in a committed and thoughtful way, it should lead to continuous improvement. As such, our efforts towards sustainability will be more of a journey than a destination. The WFE will therefore continue to strive to support our members, in this ever-evolving and critical imperative, impacting all the participants in the markets that we serve.

On this note, please don’t forget to review our consultation on green equities, available here, and share your thoughts with us.

I hope you enjoy the rest of this edition of the magazine, where you will find additional perspectives from our members and key stakeholders from COP28, as well as some broader market industry themes that are central to exchanges at this moment.