Place capital markets in stakeholder capitalism
- Capital markets have a key role to play in building a more equitable and environmentally sustainable economic system.
- ESG assets under management reached $ 35 trillion in 2020 and are expected to exceed $ 50 trillion in 2025.
- Capital markets should facilitate and promote transparent and reliable ESG disclosure to prevent greenwashing from blocking the global transition to a low-carbon economy.
As we strive to emerge from the COVID-19 pandemic, the world is working together to create a more resilient and sustainable global economy. At the national level, we see initiatives such as “Build Back Better” and “Leveling Up”, while COP26 brought the world together around goals such as stopping deforestation, phasing out electricity coal and reaching net zero by 2030.
When it comes to net zero in particular, the investment needed to achieve it – estimated at $ 125 trillion by 2050 – cannot come from governments alone. The public and private sectors must work together to drive immediate global climate action, and the world is also calling for a more equitable and environmentally sustainable economic system. This is where the capital markets have a key role to play.
When we look at both issuers and investors, I’m encouraged to see the rise of “stakeholder capitalism” and investor mobilization around the net zero transition.
Companies are increasingly aware that they must serve the interests of all stakeholders. They tie long-term business success to their customers, employees, suppliers and communities at large, and recognize that their business viability must coexist with the environment in which they operate.
Global investors, big and small, defend the environmental footprint on excessive profits, the social impact on short-term performance, and governance on growth at all costs. In an MSCI survey of 200 institutional investors managing around $ 18 trillion, 73% planned to increase environmental, social and governance (ESG) investments in 2021. In another survey in October 2021 of 800 investors Individual Americans by Morgan Stanley, 79% focused on sustainable investing.
Thus, flows are increasing, with ESG assets under management increasing from $ 30.6 trillion to $ 35 trillion in 2020, according to Bloomberg estimates, and are expected to exceed $ 50 trillion in 2025.
Capital markets must take the lead
As this momentum builds, capital markets have a critical role to play in delivering a low-carbon, climate-resilient economic transition. Practitioners know we need to take the lead and transform investment flows into fundamental, far-reaching change.
Capital markets have already proven themselves as engines of innovation – just look at the progress the electric vehicle (EV) and solar energy industries have made in a relatively short time.
Raising capital sparked investments that made core technologies competitive, as electric vehicles now account for eight out of ten new cars sold in Norway and solar power is at, or near, cost parity with power grids in many countries around the world.
How to go further ? By creating a dynamic, deep and liquid sustainable financial ecosystem to connect investors and issuers to facilitate the capital flows needed to fund research, advance ideas and propel the low-carbon transition.
This will require a strong line of sustainable finance products. Recent progress towards growing the green, social and sustainable bond (GSS) asset class is a prime example of what can be achieved, with a record $ 227.8 billion raised globally in the first half of 2021. Much more can be done in other asset classes as well, such as ETFS, REITs and derivatives, and we need to step up our efforts to broaden our product horizons.
More importantly, capital markets should also facilitate and promote transparent and reliable ESG disclosure to prevent greenwashing from blocking the global transition to a low-carbon economy. Here, cross-border collaboration between issuers, investors, exchanges and regulators is essential to create the uniform ESG rules, or taxonomy, needed to govern the green and sustainable financial ecosystem.
We also need to recognize that issuers in the capital markets are at different stages on the path to their net zero transition. Here, the role of education is particularly important for companies that do not have expertise in ESG or climate-related issues, and that must adhere to the mandatory disclosures required by the Working Group on Financial Disclosures Related to Climate. climate by 2025.
At HKEX, we see ourselves as an agent of change in global markets with a key role to play in providing the framework, guidance, resources and support necessary to help our stakeholders accelerate the adoption of business plans. green and sustainable, prioritizing the development of industries that support a post-fossil future and implementing our ambitious climate action plans.
This is what the world needs right now: but unity is the first step – so join us as we chart the course for a better world and help put ‘capital’ into stakeholder capitalism. .