A trinity of measures for mainstreaming climate finance

• The London Stock Exchange has created a thriving Sustainable Bond Market, as well as introducing a Green Economy Mark for equities.
• Climate and ESG data is essential for providing transparency, but a balance must be struck between not over-burdening companies and giving investors meaningful data.
• Policy advocacy can help drive commonality and disclosure.

When Emmanuel Faber, Chair of the International Sustainability Standards Board (ISSB), launched the ISSB’s inaugural sustainability disclosure standards in late June at the London Stock Exchange, this was another significant step forward in the mainstreaming of climate finance across capital markets.

The ISSB standards seek to introduce greater transparency into companies’ progress in reducing carbon emissions, and if adopted in policy frameworks, may help to enable capital into businesses involved in the green economy and to deliver data that promotes transparency.

The London Stock Exchange’s capital markets have evolved to the point where our markets have a range of sustainability focused asset classes, including equities, funds, fixed income, and ETFs. We started integrating sustainability into our markets in 2015, when we introduced a Green Bond Segment, and have since established a thriving Sustainable Bond Market, which attracts green, social, sustainable, sustainability-linked and transition bonds. Overall, more than 500 different financial instruments have been displayed on the Sustainable Bond Market, raising over $210 billion in capital.^[1]

To facilitate green growth, we introduced a Green Economy Mark in 2019 for London-listed companies and funds that derive 50% or more of their revenues from products and services that contribute to environmental objectives such as climate change mitigation and adaptation, waste and pollution reduction, and the circular economy. In the four years since this was launched, we’ve seen consistent growth and we now provide the Mark to over 110 companies. In fact, over the past two years (June 2021 – June 2023) the Green Economy Mark cohort has raised a total of £6.16bn through 85 IPOs and follow-on issuances.

There’s also a sharper focus on carbon markets. As many more companies set net zero targets and strategies, they’re looking at not only how they decarbonise their operations, but also how they offset any residual emissions. We developed a designation for London-listed companies and funds that direct capital into projects that are mitigating climate change and can generate carbon credits.

Turning to the second dimension of mainstreaming climate finance, you need sustainability data to be readily available for both investors and for corporates. As a major market infrastructure company, we provide the market with a wide range of sustainability focused data including green revenues, carbons emissions and ESG data. Of course, ESG data is on a path of improvement that requires the right balance between companies not feeling overburdened by the level of disclosures that they need to make, and investors feeling that they've got high-quality information. Investors don’t want to rely always on estimated data. Achieving this balance is a goal of the ISSB standards.

The third dimension relates to policy and advocacy. We’ve endorsed the development of ISSB’s standards since work started after COP26 in 2021: a framework that governments need to back as it puts climate front and centre in boards’ decision making. We've also supported the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations, and have reported against TCFD ourselves as a listed company since 2017.

We worked with the UN Sustainable Stock Exchange initiative to produce guidance and support for companies interested in implementing TCFD’s recommendations. Similarly, we are supportive of global economy wide adoption of ISSB’s standards and what that can mean in terms of more commonality and disclosure transparency across markets. We believe the standards give policymakers a unique opportunity to accelerate company disclose by 2025. To achieve this, we need to support governments in implementing robust and globally aligned policy frameworks for sustainable finance.

But it's not about having standards that are exclusive to public companies and applying different standards for private companies, because how a business raises capital makes little difference to its environmental impact.

Returning to the ISSB, the launch of its disclosure standards will help green capital raising and data transparency. Given adequate support from governments and regulators, important steps like this bring climate goals a little nearer.

LSEG can help your transition to net zero with data, enhanced corporate disclosure capabilities and access to transition capital.