Put 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 projected to exceed $50 trillion in 2025.
  • Capital markets must facilitate and promote transparent and reliable ESG disclosure to prevent greenwashing from stalling the global transition to a low-carbon economy.

As we emerge from the COVID-19 pandemic, the world is working together to make a more resilient and sustainable global economy. At the national level, we see initiatives like “Build Back Better” and “Leveling Up”, while COP26 has united the world around goals like halting deforestation, phasing out coal power and reaching net zero by 2030.

Looking at net zero in particular, the investment required 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 capital markets have a key role to play.

As we watch both issuers and investors, I am heartened to see the rise of “stakeholder capitalism” and investors mobilizing around the net zero transition.

Companies are increasingly aware that they must serve the interests of all stakeholders. They are linking long-term business success with their customers, employees, suppliers, and communities at large, and are recognizing that their business viability must co-exist with the environment in which they operate.

Global investors, both large and small, defend environmental footprints over excessive profits, social impact over short-term performance, and governance over 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) investing in 2021. In an alternative October 2021 survey of 800 individual US investors conducted For Morgan Stanley, 79% focused on sustainable investing.

As such, flows are increasing, with ESG assets under management growing from $30.6 trillion to $35 trillion in 2020, according to Bloomberg estimates, and forecast to exceed $50 trillion in 2025.

Capital markets must take the lead

As this momentum builds, capital markets have a crucial role to play in shaping the low-carbon, climate-resilient economic transition. Practitioners know that we must take the lead and turn investment flows into far-reaching fundamental change.

Capital markets already have a strong track record as engines of innovation – just look at the progress the electric vehicle (EV) and solar industries have made in a relatively short time.

Capital increases have triggered investments that have made core technologies cost-competitive, to the point where electric vehicles now account for eight out of 10 new cars sold in Norway and solar power is on par, or close to cost parity with power grids in many countries. countries around the world.

Image: International Renewable Energy Agency, 2021

How can we go further? By creating a vibrant, deep and liquid sustainable finance ecosystem to connect investors and issuers to facilitate the capital flows needed to fund research, scale ideas and drive the low-carbon transition.

That will require a robust range of sustainable financial products. Recent progress towards growing the Green, Social and Sustainable (GSS) bond asset class is a great 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 to broaden our product horizons.

Image: Bloomberg, January 2021

Most importantly, capital markets must also facilitate and promote transparent and reliable ESG disclosure to prevent greenwashing from stalling 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 must also 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 have no expertise in ESG or climate-related issues, and that must comply with the mandatory disclosures required by the Task Force on Climate-Related Financial Disclosures to 2025.

At HKEX, we see ourselves as a change agent in global markets with a key role to play in providing the necessary framework, guidance, resources and support to help our stakeholders accelerate the adoption of business plans. green and sustainable, prioritizing the development of industries that support a post-fossil fuel future, and launching 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 the ‘capital’ into stakeholder capitalism.

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