How can exchanges & financial institutions encourage sustainable economic growth?

Shaotong Liu, Executive Vice President, Shanghai Stock Exchange (SSE), took part in the sustainable finance panel at the WFE’s recent symposium in China, which was co-hosted by the exchange. He discusses the SSE’s role in promoting green finance.

Exchanges can promote green finance and sustainable development in three ways. First, exchanges are the rule and standard setters of capital markets. In recent years, relevant definitions and standards relating to the field of green finance have gradually been established as more international organisations, countries, and corresponding exchanges are getting involved. While pursuing the harmonisation of green standards across the globe, each exchange could work to tailor the relevant standards of green finance to their unique circumstances. This includes products such as green bonds, green asset-backed securities, and green indices.

Second, exchanges are the organisers of the capital markets. On one hand, exchanges support issuers to raise funds through green securities, while on the other hand, exchanges guide investors to invest in green financial products. This effectively helps establish a direct financing market for green industries. Exchanges also promote cooperation between various market players, such as issuers, investors, intermediaries, and other stakeholders, to push forward the sustainable development of capital markets.

Third, exchanges are the front-line regulators of capital markets. Exchanges should require issuers of green securities to strengthen their environmental information disclosure; provide complete data on their initial and subsequent capital usage; and outline their environmental impact e.g. reductions in carbon dioxide emissions. Exchanges can take appropriate measures against those issuers who are in breach of the green market standard.

Through active participation in the World Federation of Exchanges (WFE) and the UN Sustainable Stock Exchanges initiative, stock exchanges are building up their capacity in green finance. More than ever, exchanges are playing an increasingly important role in fostering sustainable development.

The Shanghai Stock Exchange (SSE) recognises the strategic importance of green development. We have set up a cross-functional committee for promoting sustainability and recently released ‘SSE Vision and Action Plan for Serving Green Development and Promoting Green Finance (2018-2020)’.

First, SSE has enabled the stock market to support green development. We have supported green companies to raise capital through IPO on the exchange, and we have also released the ‘Guidelines for Environmental Information Disclosures by Listed Companies’ to help listed companies disclose environmental information and strengthen their awareness of social responsibility.

Second, SSE has devoted great efforts to the development of green bonds. In 2016, the exchange issued the ‘Notice on Launching the Pilot Program of Green Corporate Bonds’ which formally initiated the pilot programme in this area. Green corporate bonds will be uniformly identified with special short names and listed on a dedicated section of the exchange.

Third, SSE has actively developed green securities indices and fund products. Together with China Securities Index Co. Ltd., and other institutions, SSE has launched various green securities indices and green Exchange Traded Fund (ETF) products.

Fourth, SSE has reinforced international cooperation on green finance. The exchange has joined the United Nations Sustainable Stock Exchanges initiative, become an observer of the Green Bond Principles, and now plays an active role in the development of rules and standards on international green finance. Recently, SSE and the Luxembourg Stock Exchange successfully launched the ‘Green Bond Channel’ for cross-border cooperation in green finance.