It's said in some circles there's a little Greta Thurnberg lurking inside all of us. The Swedish teenage environmental activist’s campaigning efforts on climate change have certainly gained international recognition and column inches. But even in the bastions of capitalist enterprise things are changing and fast - including at the London Stock Exchange (LSE) - even if you might necessarily think so.
You will no doubt recall protests by climate change activists earlier this year in April The City of London and other financial centres around the globe. Some protestors from Extinction Rebellion linked arms and formed a line outside the LSE’s headquarters in Paternoster Square opposite St Paul’s Cathedral, supergluing their hands to the 200-year old bourse. The pictures were dramatic.
But is the LSE - not of course to be confused with the London School of Economics - to blame or even responsible for major corporates lacking leadership on the climate front?
True, the pre-imminent exchange in Europe by company listings and market capitalization of those organisations listed on the bourse is a symbol of capitalism. OK - it’s not a charity (wishful thinking) and there to make money. Yet it should be noted that in 2015 the LSE became the first major stock exchange to launch a dedicated green bond segment. Fast forward to today and sustainable investment is no longer a niche activity and a key consideration for institutional investors, who deploy ESG and SRI criteria in their investment strategies.
Whatever else though, the protesters know that anything they do in front of the Stock Exchange - be it the LSE, New York Stock Exchange (NYSE), Chicago Mercantile Exchange (CME) or any other mega exchange for that matter - is likely to get them publicity, which is correct.
In one sense it really does not matter what the exchange is actually doing. It stands for capitalism, which is actually accurate. It’s a place where firms raise capital. And, since capitalism is by their definition evil, they are actually in the right place. Also, it’s difficult to protest in front of some other places to raise capital, such as Kickstarter, one of a number of crowdfunding platforms out there.
That said, the stats do tell their own story. Over the last five years since 2014 the listed green fund market size (market capitalisation) on the LSE has grown by over 200% - up from the $3 billion (bn) back in 2014 to slightly north of $7bn in around 2018 and now above $9bn (as of April 2019 according to data from the LSE, Dealogic, Factset and Morningstar.
To that cut-off date the total number of green funds listed on the exchange stood at 22, which covers exposure to technologies and projects in wind, solar, energy storage and efficiency.
A further $6.3bn of further capital has been raised by green funds since their listing. These are facts contained in the LSE’s just published guide to ‘Navigating the green finance landscape’ (Oct 2019), which came out on the cusp of the exchange announcing a new initiative, a ‘Green Economy Mark’.
Nikhil Rathi, CEO of the LSE and Director, International Development at the LSE Group, commenting around the time of the Sustainable Finance and Investment Summit this October: “Financial markets must play a pivotal role in the transition to a greener, more sustainable economy.
“We are committed to playing our part,” he added. “Building on our engagement with the UK Government initiatives such as the Green Finance Taskforce, which led to the creation of the Green Finance Institute and the EU’s High-Level Expert Group and Technical Expert Group, which developed recommendations for the EU’s Green Financing Taxonomy.”
Sitting at the heart of the global financial system, the LSE should be well placed you would think to support the transition to a sustainable, low-carbon economy. The new “mark” is latest move along a road dating back five years for an exchange that is one of the world’s oldest having originally been founded in 1571 as the Royal Exchange.
The new 70-page guide accompanying the official Green Economy Mark launch at the LSE is designed according to the exchange to “help navigate and make use of the current green finance tools and stimulate new ideas.”
At its launch last month (October 2019) there were a total 74 London equity issuers (companies) - equivalent to an aggregate market capitalisation of in excess of £55bn qualified for the Green Economy Mark by virtue of generating over 50% of their revenues from the green economy. Of this total 38 represented Main Market issuers (total market cap £51.7bn) and 36 AIM (Alternative Investment Market) issuers (for a total market cap of £3.6bn).
What is the Green Economy Mark?
The Green Economy Mark offers a solution to the challenge of “identifying an investable universe of green economy equities” according to the LSE. Investment in these stocks can investors broad, cross-sector and international exposure - rather than a much narrower focus on, for instance, renewable energy infrastructure and ‘pure-play’ clean technology companies.
Industry sectors covered by the green economy span:
• Energy Generation
• Energy Equipment
• Energy Management
• Energy Efficiency
• Environmental Infrastructure
• Environmental Resources
• Modal Shift (incl. aviation, railways, road vehicles and shipping)
• Operational Shift (incl. finance/investment, retail/wholesale, property)
How does the Green Economy Mark work and what is the methodology behind it?
The ‘Mark’ specifically identifies London-listed company and funds, which generate between 50% and 100% of their total annual revenues from products and services that contribute to the global green economy as defined by the Green Revenue taxonomy developed by FTSE Russell, a unit of the LSE.
The benchmark used measures over 14,000 public companies globally across 133 micro-sectors, from advanced battery and solar panel manufacture to sustainable agriculture and flood defence construction.
While the exchange’s stated focus on innovation in green finance sits across all their market, the Green Economy mark for equities is touted by the LSE’s Rathi as “raising the visibility of listed companies and funds that drive positive environmental contributions from their commercial activity.”
Today, the green economy business represents around 6% of the market capitalisation of global listed companies - equating to around $4 trillion (trn). A big number, but clearly there is further to go. Still, over 450 companies across all major sectors have committed to setting science-based targets in line with the Paris Agreement on climate change (COP21).
Globally over $30trn in assets under management (AUM) are now linked to sustainable investment strategies according to The Global Sustainable Investment Review (2018).,
The central objective of COP21 was to strengthen the global response to the threat of climate change, by keeping a global temperature rise this century “well below” two degree Celsius above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees Celsius.
COP26, which will be hosted by the UK and held in Glasgow in December 2020, is when progress will be measured against the commitments of the Paris Agreement from November 2016 and the latest science. It is likely that as the findings feed into the UN process (i.e. the UN Sustainable Development Goals), there will be further tightening of emissions targets.
And, if you needed more food for thought on the climate change debate and key issues beyond, take Halla Tómasdóttir, a former Icelandic presidential candidate and CEO of The B-Team (https://bteam.org/) in New York, a group of global leaders working together to transform business for a better world co-founded by Sir Richard Branson and Jochen Zeitz, who I interviewed for an article on Forbes in London prior to a Simmons International Leadership conference (http://leadership.simmons.edu/international/) in Dublin in late 2018.
She referred to the “5 pillars” of bolder company leadership in our discussion. And, in a blog this August she commented in relation to building a better future and what is needed: “We must address the existential climate crisis, unsustainable levels of inequality and broken trust not only “at home” in our own companies, but also beyond - in our supply chains, our industries, our countries, regions and the world at large. The world needs nothing less from those of us who want to call ourselves leaders.” Carpe diem and roll on Glasgow.
For more information and to download the LSE’s guide to ‘Navigating the green finance landscape’ see this link: http://www2.lseg.com/sustainablefinance/Guide-to-green-finance/download
About the author: Roger Aitken is a freelance writer for various titles and has contributed to Forbes (www.forbes.com/sites/rogeraitken). For a number of years he worked at the FT as a staff writer in London. He has been awarded a State Street Institutional (UK) press prize for covering regulatory issues in financial markets. Previously he worked as an editor at the LSE within the Regulatory News Service (RNS).
For the interview with Halla Tómasdóttir on Forbes see www.forbes.com/sites/rogeraitken/2018/11/11/financial-crash-or-not-did-w...