Are these predictions of the death of ESG greatly exaggerated? Is the term simply fading away in preparation to transform itself? Or is ESG indeed on its deathbed, like Tinkerbell – the fairy in Peter Pan – flickering weakly, still alive only because some people believe in it? The debate has become particularly heated in the United States, where ESG investing has become a political football.  A January report from Pew Charitable Trust reports that while Colorado, Illinois, Maine, and Maryland have promoted ESG factors in public pension investment, 14 states in 2023 passed laws discouraging ESG considerations or banning ties to financial companies supporting them. A Global ESG Monitor published in late 2023 found that 78% of Americans still have not heard of ESG or aren’t sure what it is. 

To discuss the fate and the evolution of ESG, John Lothian News Environmental Markets held an online roundtable discussion with leaders from the World Federation of Exchanges and ESG leaders from the Intercontinental Exchange (ICE), Luxembourg Exchange (LuxSE) and Nasdaq. 

ESG: Creating context 

Some context is needed: The idea of the ESG framework was popularized by the UN Environment Programme Finance Initiative, or UNEP FI, in 2004. ESG in the business context means using environmental, social and governance factors to assess the sustainability of companies. These three factors represent the three major challenges facing corporations and society: climate change, human rights and adherence to laws. At its core, the need for the ESG investment framework in the financial world arises from evidence that current economic pathways are unsustainable and new ones must be forged. 

Exchanges play a key role in data and transparency of issuer information that enables better price formation. They also develop products such as helping to price carbon (nature) more effectively. Exchanges that require high standards as part of their listing process – demonstrate how standards can helpfully be improved and lead to a better international baseline. 

$30 trillion in ESG assets 

Since the emergence of the ESG term in 2004, the investment movement has grown into a global phenomenon representing more than $30 trillion in assets under management and giving rise to multitudes of organizations and frameworks for assessing progress toward meeting the UN’s Sustainable Development Goals (SDGs).

To provide insight and context on the question,”Is ESG Dead?” JLN’s  Environmental Markets talked with five exchange leaders commanding the tools that will assist the transition in the capital markets to green from brown. Featured in this roundtable are Nandini Sukumar, chief executive officer of the World Federation of Exchanges (WFE), and Victoria Powell, senior manager – ESG, Regulatory Affairs for the WFE. The WFE’s 9th Sustainability Survey collects information from WFE members and affiliates, including stock and derivatives exchanges, from developed to frontier markets. The report captures the progress and achievements of the exchange industry in its engagement with ESG issues as well as the challenges the industry faces in achieving its ESG goals. 

Joining the WFE leadership are three members of the WFE’s sustainability working group.

Exchange roundtable participants

Gordon Bennett has been the managing director, utility markets and global head of environmental markets at Intercontinental Exchange (ICE) since 2015, overseeing global environmental portfolio sales and business development. He serves on the boards of ICE Endex, ICE Futures Abu Dhabi, Spark Commodities, and advises BeZero Carbon. His involvement extends to environmental and energy market initiatives including the Nature Based Solutions Taskforce and the Transition to Net Zero Working Group. Bennett was recognized as Environmental Finance’s sustainable business leader of the year in 2022. 

Laetitia Hamon, Head of Sustainable Finance at the Luxembourg Stock Exchange (LuxSE), is responsible for the exchange’s sustainable finance strategy and related projects, and leads the expert team at LuxSE’s UN-awarded platform for sustainable finance, the Luxembourg Green Exchange (LGX). Laetitia was appointed to the European Commission’s High-Level Expert Group on scaling up sustainable finance in low- and middle-income countries in 2022.

~Established in 2016, the Luxembourg Green Exchange (LGX) is the world’s leading platform for sustainable securities, raising a total of EUR 1 trillion for sustainable development, and issued by 310+ issuers across 60 countries

~LuxSE actively contributes to strengthening gender diversity in the financial sector. As a founding partner and signatory of the Luxembourg Women in Finance Charter, LuxSE works to make Luxembourg’s financial centre more diverse and inclusive.

~The Luxembourg Stock Exchange (LuxSE) and UN Women are committed to working together to advance financing for investment projects which contribute to gender equality and the empowerment of women and girls across the world.

Tomas Thyblad – Head of ESG Solutions, European Markets, and Vice President at Nasdaq. Tomas oversees Nasdaq’s offerings in the Environmental, Social, and Governance areas, with a focus on solutions within the carbon market, including carbon removals (CDRs) and the voluntary carbon market (VCM). 

~Nasdaq offers a comprehensive suite of ESG solutions aimed at enhancing sustainability practices and attracting long-term capital for companies. 

~Nasdaq has been named to the  Dow Jones Sustainability Indices (DJSI), a prestigious environmental, social, and governance (ESG) ranking benchmark. 

~The Exchange earned a perfect score in the Human Rights Campaign Foundation’s 2023 annual assessment of LGBTQ+ workplace equality. 

Hopkins said Nasdaq sits at the nexus of the stakeholder ecosystem - the investors, corporations, raters and regulators who are all doing work around ESG. Nasdaq’s goal is to drive value through that stakeholder ecosystem. It does that, first, by helping companies set ESG priorities, and then second, on the operational side, by helping companies manage the data relevant to ESG and communicate its value. 

Hopkins said that although technology and AI will play an important role in bringing sustainability initiatives to scale, human insight will be the main driver of progress in business sustainability efforts. AI can help with ESG data analysis, but one size doesn't fit all.

Hopkins provided examples of successful corporate sustainability efforts that Nasdaq developed. ESG challenges for companies have created opportunities for Nasdaq. These include collecting and managing data from disparate systems and calculating data to build a green-house gas (GHG), or carbon, footprint that can be used for reporting. Hopkins said that he doesn’t see one framework or one taxonomy that will rule all others. He said that with regulatory moves pending in both the U.S. and the EU, it’s a blend right now. 

Finally, for students who aspire to work for Nasdaq, Hopkins said, Nasdaq hires people who are nimble-of-mind system thinkers who can connect the complexities of the business world with the sustainability world. "They can come from any discipline," Hopkins said. "If they have that sort of critical thinking and that sort of curiosity, I certainly think they'll do well in this space because it is a highly evolving space. It's one that has a lot of yield for hard work and creative approaches to really complex challenges in our ecosystems, and certainly for Nasdaq."

Nandini Sukumar, CEO of WFE, opened the conversation and introduced Victoria Powell, senior manager, ESG regulatory affairs for the World Federation of Exchanges. Also on the roundtable were members of the WFE Sustainability Working Group: Cesar Sanches, head of sustainability, B3; Tomas Thyblad, head of ESG solutions, European Markets, Nasdaq; and Martina Macpherson, head of ESG Product Strategy & Management, SIX Group. 

In opening the ESG Roundtable, Sukumar highlighted how exchanges have actively addressed ESG concerns for the past two decades, given their unique position at the heart of the financial system, interacting with issuers, regulators, investors, and more. She also addressed the WFE's recent ninth annual sustainability survey. 

Green equities emerged as a focal point in the conversation, with exchanges like NASDAQ actively supporting the sustainability journeys of their listed companies. The introduction of frameworks enabling transparent and structured sustainability reporting for corporates has not only attracted investors but also helped companies showcase their sustainable practices.

VCMs are the current trend in the carbon markets. Martina Macpherson from SIX Group highlighted the importance of aligning issuers with regulatory disclosures and investor preferences, and building analytical solutions to navigate the complex ESG landscape.

Victoria Powell focused on the aspect of 'just transition,' ensuring that no one is left behind in the shift towards sustainability. She emphasized how exchanges are actively promoting diversity and inclusion, exemplified by initiatives like B3's gender diversity index, which promotes companies valuing diversity in leadership positions.

The discussion also encompassed the need for clarity and standardization in carbon markets, highlighting the necessity for global treaties, regulatory interventions, and established definitions of carbon credits. Executives emphasized the unique positions of their exchanges, offering top-level overviews of investor trends and corporate initiatives.

Cho emphasized the importance of financing transitions through various instruments, notably green, social, and sustainable bonds (GSS bonds), and the evolving landscape of sustainability-linked bonds (SLBs). GSS bonds, established for years, have a proven track record in using proceeds for sustainable purposes, whereas SLBs are forward-looking with sustainability targets incorporated into their structure.

In our discussion Cho highlighted the significance of Sustainability Performance Targets (SPTs) within SLBs, emphasizing the forward-looking nature of the instruments and their measurement against material, science-based benchmarks, aiming for genuine impact on emissions reduction. Cho stressed the need for credible SPTs and transparent disclosures in these instruments, considering the challenges faced in measuring their impact and ensuring meaningful incentives or penalties for performance.

Cho discussed SGX's collaboration with BlackRock, through the listing of iShares MSCI Asia ex-Japan Climate Action ETF. She also talked about SGX's commitment to enhancing sustainability reporting by adopting the ISSB (International Sustainability Standards Board) framework, aiming to ensure global standardization and comparability in disclosures. She touched on the memorandum of understanding between SGX, the Monetary Authority of Singapore, and the United Nations Commission on Sustainable Development (UN CDSC) that will enhance their collaboration and strengthen free access by stakeholders to key climate transition-related data.

Looking ahead to COP28, Cho said the financial sector expects discussions on transition financing, adaptation measures, and nature-related solutions, acknowledging the need for a balanced approach considering socio-economic factors and global geopolitical events.

Cho emphasized SGX's commitment to supporting a collaborative ecosystem focused on sustainable finance, acknowledging that their efforts are part of a broader collective push towards a more sustainable future.