For stock exchanges to play an important role in promoting the reorientation of financial markets to support sustainable development goals there is a need for governments to improve market’s liquidity, the United Nations Conference on Trade and Development (UNCTAD)-backed Sustainable Stock Exchanges (SSE) Initiative has said.
In its 2016 Progress Report released on Wednesday, nearly 60 stock exchanges across the world representing over 70 per cent of listed equity markets, and some 30,000 companies with a market capitalisation of over $55 trillion, have now made a commitment to “advancing sustainability in their markets” under the SSE Initiative.
With regard to market transparency, 12 exchanges currently incorporate reporting on Environmental, Social, and Governance (ESG) information into their listing rules and 15 provide formal guidance to issuers.
Stock exchanges are uniquely positioned to influence their market in a way few other players can. In addition to their ability to influence investor and company behaviour, exchanges often support regulators in promoting the adoption of market standards.
According to the report, the transition to a sustainable financial system means that “market incentives must be aligned with long-term values and environmental, social, and governance considerations need to be integrated into standard practice.”
Describing how stock exchanges represent the intersection between companies and investors, the report noted a growing body of evidence that shows the positive correlation between ESG performance and strong financial performance too.
However, it notes that financial markets could do more to support the achievement of the Sustainable Development Goals (SDGs).
The SDGs outline many of these environmental, social, and governance factors and provide a framework to address them
Achieving the goals will require a large injection of finance, at least some of which will have to come from the private sector.
The report noted that achieving the SDGs requires significant financing, estimated at $5 to 7 trillion per year.
“While public funding and development assistance remains important, the scale of the investment challenge requires new flows of private capital.”
The SDGs provide a global growth strategy for the next decade. As the intersection between companies and investors, stock exchanges are well positioned to contribute to the SDGs, the report stated.
Meanwhile, UN Secretary-General, Ban Ki-moon, launched the SSE Initiative in 2009. It is organised by UNCTAD, the United Nations Global Compact, the United Nations Environment Programme Finance Initiative (UNEP-FI), and the Principles for Responsible Investment (PRI).