Bringing issuers and investors together on net zero

The London Stock Exchange scooped this year's Exchange of the year award. Head of debt capital markets Shrey Kohli and senior product manager Elena Chimonides explain its focus on sustainable finance

Environmental Finance: Where does sustainable finance fit with the London Stock Exchange's broader strategy?

Shrey Kohli: We are seeing a generational shift in capital markets with trillions required to help fund the transition to a net-zero economy. Stock exchanges help bring together investors with those seeking capital. Our markets support the growth of the green economy, enabling issuers to raise equity and issue fixed income securities aligned with this transition to a low-carbon, sustainable economy.

Shrey KohliSitting at the heart of financial markets, we are supporting companies on their pathway to net zero, through the provision of data, education and tools and the facilitation of funding. The London Stock Exchange is pivoting squarely towards the green economy, having developed, and continuing to develop, best-in-class products and solutions.

The Sustainable Bond Market, which we launched in 2019, is a market leader for issuers of sustainable debt. Our Green Economy Mark, launched in the same year, identifies London-listed equity issuers generating more than 50% of their revenues from green products and services.

We have also launched Climate Reporting guidance to support better data and disclosure, aligned with the recommendations of the Task Force on Climate-related Financial Disclosures [TCFD].

And, at COP 26 in Glasgow last November, we announced plans to develop a Voluntary Carbon Markets solution with the goal of addressing two major challenges: access to capital at scale for the development of new climate projects worldwide; and primary market access to a long-term supply of high-quality carbon credits for corporates and investors.

EF: The Sustainable Bond Market has seen rapid growth over the last year. What's behind its growing popularity with issuers?

Elena Chimonides: In 2015, the London Stock Exchange became the first exchange to set up dedicated segments for green bonds in response to the development of the Green Bond Principles. That developed into the Sustainable Bond Market [SBM] in 2019, which brings together dedicated segments for social bonds and sustainability bonds. Last year, we added the Transition Bond Segment to the SBM, supporting issuers that have robust and credible transition strategies aligned to the Paris Agreement.

Over £52 billion was raised by 107 bonds in 2021, more than three times the total capital raised in 2020. In addition, more than £31 billion was raised through sustainable sovereign bonds, up six-fold, year on year. There are currently over 340 active bonds on the market, which have raised a total of £108 billion.

With companies increasingly prioritising ESG projects to drive opportunities or alleviate risks facing their businesses, and with many investors taking a sustainability-led approach, the market looks set to continue to grow.

EF: What reception have you had to your TCFD-aligned climate reporting guidance?

Elena ChimonidesEC: The London Stock Exchange was the first exchange to issue guidance based on the UN Sustainable Stock Exchanges [UN SSE] Model Guidance on Climate Disclosure, designed to assist companies to implement the recommendations of the TCFD. If offers practical advice and a step-by-step guide to supporting companies as they begin to report on climate risk and opportunity. In February this year, we partnered with the UN SSE to provide two climate reporting and TCFD interactive training sessions for listed issuers.

We've also introduced Climate Governance Scores for more than 400 issuers as a private educational resource to help them understand the climate metrics that investors are focused on, identify areas for improvement, and assess their performance against their industry peers.

The feedback has been really positive – companies are seeing the value they get from our end-to-end approach. This includes helping them understand their current progress, discovering best practise and accessing capital to mobilise their credible transition plans.

EF: The exchange has awarded its Green Economy Mark to 117 companies. What advantages does it provide to recipients?

SK: Investors recognise the opportunity in the transition to a sustainable economy. If the green economy was classified as a sector in its own right, it would be the fourth largest on the London Stock Exchange in terms of capital raised over the past three years. Investors want to be able to easily identify companies that are offering green products and services. Based on a robust methodology, utilising the FTSE Russell Green Revenues Classification System, the Green Economy Mark is seen as a valuable accreditation for investors looking to interact with issuers.

EF: What's on the agenda for the coming 12 months?

EC: The focus for the upcoming year is very much on continuing the growth of the green economy. Data and analytical tools will be increasingly important for both companies and investors, to help them make the best-informed investment decisions.

We also see the impact of regulatory requirements coming to the fore for large UK companies, with the implementation of mandatory TCFD reporting from 6 April [2022]. Issuers also need to publish their transition plans by 2023, which requires planning to start now if it hasn't already.

We see it as our responsibility to provide companies with training, data and a platform to raise the capital they need to prepare their businesses and operations for the low-carbon transition.