Jane: [00:00:00] Hello and welcome to the LSEG Sustainable Growth Podcast, where we talk to leading experts about a wide range of topics covering sustainability, business and finance. I'm your host, Jane Goodland, and this week I talk to Anthony Miller from the UN Sustainable Stock Exchange Initiative, otherwise known as the UNSSE, it has 138 member stock exchanges and works with them to enhance performance on environmental, social and governance issues, encouraging sustainable investment and financing for the UN Sustainable Development Goals. So let's hear what Anthony had to say.
Jane: [00:00:39] Well, hello Anthony, thank you so much for coming on to the show. I've been really looking forward to our chat, and I've got some really good questions to grill you on. But first, before we get involved in that, I wanted to start with just a bit of the basics. What do we mean when we talk about stock exchanges? Because there's lots of them around the world and they're not all just trading equities, are they? Tell me more.
Anthony: [00:00:59] Thanks for that, Jane. And it's great to be with you here today. Yes, we have at the UNSSE. We've got 138 member exchanges. They're not all stock exchanges. Some of them are pure play derivative exchanges. For example, I think we have in the neighbourhood of 1415 pure play derivative exchanges in our network, some exchanges, they will literally have the word stock exchange in their name, but they're primarily bond trading venues. So it's something that we've gotten used to over the years working with exchanges, that exchanges are very different animals in different markets. They have different product mixes, they've got different regulatory environments. So it's certainly in our work with exchanges, when we're trying to provide policy advice or suggestions for action in certain areas, we are always aware that they have very different circumstances, both in the product mix and policy environment. So we always try to give them menus of action so they can kind of adapt and fit with what works best with them.
Jane: [00:01:57] But they're incredibly important institutions, aren't they, because they sit at the heart of the market environment. So really important that you're kind of engaging with them on these types of topics and in their own right can be really quite influential, can't they?
Anthony: [00:02:12] Absolutely. I mean, people ask us, why does the UN work with stock exchanges? That is the answer. Stock exchanges sit at this intersection point between issuers, investors, standard setters, policy makers and so on. It's one of these ironic things about capital markets quite often in popular media. Capital markets are often looked at as kind of the wild west of capitalism, because people see charts going up and down all day and so on. But the opposite is more the reality. It's one of the most regulated industries in the world. So exchanges play a very important role in having a very regulated, structured economic activity. And this is one of the reasons why policymakers pay a lot of attention to exchanges in their health. Now, it's also an important point to realise because we run into this a lot. I'm sure exchanges run into this often. Sometimes people also have an outsized view of what exchanges can and cannot do. They think exchanges run around with a magic wand and can just dictate to all of market participants whatever they should do. That's not the way it works either. Exchanges are, though, in a position to convene conversations about how the market works, about what standards should be done, about what kind of regulation is appropriate and which kind is not. So that's the reason why we work with exchanges, because they have that powerful voice to convene that conversation. And they are eager to do that.
Jane: [00:03:38] So tell us more about the UNSSE, because I'm keen to understand and clarify what's the kind of ultimate objective of the initiative and effectively, why was it set up and when was it set up?
Anthony: [00:03:52] Sure the UNSSE says it was created in 2009 by the UN secretary general, and it was part of this wave of UN partnership programmes that you saw in the early 2000. You had the UN Global Compact that works with companies. You had the UN supported principles for Responsible investment, the PRI. They work with asset owners, asset managers. And then you have the UN Environment Programme Finance Initiative. They work with banks and insurance companies all across the board. The UN has been engaging with these companies because these companies, as they themselves, started to globalise in the 90s and the early 2000, they were running into all kinds of social environmental issues, these big macro issues that we talk about, that governments talk about. Is there a large enough company? And if you're engaged with market participants across the board, you are going to also run into these issues because they start to become material for the way businesses operate. So the SSE was born out of that. Stock Exchanges didn't really have an institutional home. They didn't like, fit into any of these other initiatives. So the SSE's parents include the Global Compact, the PRI and FFI. And they came together with the UN Conference on Trade and Development to create the SSE as a bespoke home for exchanges. And what do we do? We work with exchanges to provide kind of a clearinghouse of information on best practices, and that's one of the things that I appreciate the most working with exchanges is that exchanges, most exchanges most of the time, they do not see sustainability issues as a competitive issue, in the sense that they're unwilling to share experiences with their peers around the world.
Anthony: [00:05:31] That's not true. They're happy to share experiences. Many exchanges would like to see sustainability as kind of a baseline issue that all exchanges help to raise the bar all around the world. And so they are happy to share their best practices and experiences. And so that's what we do. And I think the thing that convinces exchanges the most to do something is the example of their peers. And we always try to avoid what I refer to as sort of blue sky ideas, like, wouldn't it be nice if dot dot, dot. We don't engage in that. What we, really look for is what our exchange is doing. Can we show proof of concept? There's an exchange over in this part of the world that's innovative, that's really unique and impactful approach to sustainable finance. Let's share that with other exchanges around the world. Maybe they might find that interesting and suitable for their own markets.
Jane: [00:06:24] I think by my calculations, to be going about kind of, what, 16 years or so to have 138 members, pretty good track record, right? In terms of, there's clearly sort of a groundswell behind this. And it looks like, you've been really successful in attracting support. So 138 exchanges in just what, 16 years? I think that's pretty impressive. So clearly a groundswell and momentum behind this initiative. One of the things I wanted to kind of touch on was around your support for members in the context of developing market infrastructure or products, if you like. I wanted to understand a little bit more about that. So exactly how does that work? And perhaps we could look at, say, carbon markets as an example.
Anthony: [00:07:10] Sure. So as I mentioned before, we do try to share best practices. So there are where we see exchanges innovating in certain product areas, whether it's green bonds or green equity marks or all kinds of things. We are happy to share those experiences to other markets where it might be applicable, depending on that market's product mix. In the case of carbon markets, we've seen a big surge in activity in this space in the last few years. And you can have carbon markets that exist outside of the exchange environment. But one of our policy advice to policymakers, to governments, because we are, at the end of the day, UN entity. So we interface a lot with regulators and governments is we often tell them that if you want to create a carbon market, one good piece of news is you don't have to reinvent the wheel in terms of market infrastructure. Almost every country has got a stock exchange in their backyard. Just ask the exchange to do it. They can do it. And that's true of both of compliance markets as well as voluntary carbon markets. On voluntary carbon markets, there's a lot of innovation at the exchange level because of the word voluntary. They don't require as much or even any government involvement. So they start to innovate in this space. So we did do a publication on that a couple of years ago. And that publication is also illustrative of how we work.
Anthony: [00:08:36] A lot of the times that publication was born out of questions we were getting from one exchange in particular, and that exchange. It was indicative of what we see in a lot of exchanges around the world. Basically, the CEO of the stock exchange gets a call from the Minister of the environment or Minister of Finance and says, please create a carbon market. CEO says, yes, Minister hangs up the phone and then turns to their staff and says, what's a carbon market? How do we do that? And they approached us and they started to ask us to connect the dots between them and various UN entities and other exchanges that were more advanced on this topic and so on. And we realised, well, we need to also educate ourselves. So we started this research project where we started to collect examples from around the world, and that resulted in that guidance document. It is a very interesting space. One of the things about carbon markets, voluntary carbon markets is there's this value chain from financing the on the ground project, doing the on the ground project, converting that into carbon credits, trading the carbon credits and also trading related futures Contracts and exchanges are involved in every part of that value chain. So I think London Stock Exchange is unique in being part of the very upstream part of the value chain. They have a unique and very interesting product that helps to finance the original project on the ground before it's ever even turned into a carbon credit.
Anthony: [00:10:00] Then a lot of exchanges are engaged in the actual spot trade of carbon credits. Then you have the future contracts, where you have a couple of derivative exchanges that just totally dominate that space globally. But it's a very interesting market. One of the things that we particularly interested in, too, is that carbon markets are an excellent way. Voluntary carbon markets are an excellent way to help finance, to transfer sustainable development finance from deep pools of capital, primarily in North America and Europe, into developing countries to finance climate mitigation and adaptation. So it's a very promising area. I think that there are challenges, huge challenges. I think one of the biggest ones is liquidity and of course volumes. These things need to go up. There are challenges around verification and the whole verification process that can always be made more robust because like many markets, the entire market exists entirely on the credibility of the underlying verification. So if you don't believe in that, then you don't believe in anything else to that you lose all value. So that has to be very robust. So it's an interesting dynamic space. And we're very proud of what we see exchanges doing in the space that they're actively stepping up and doing a lot to try to develop these markets.
Jane: [00:11:22] I think it's quite interesting you drawing out at this point about the value chain, though, in terms of I think it's perhaps not well understood that there is this value chain and trading carbon is, one just one part of that kind of value chain. And actually it's super important that we find ways to scale that financing scale both on the supply and demand side, actually. Personally, I think carbon markets are a fascinating part of the overall capital markets. But it feels like it's taking quite a long time for it to get going and get mature and to see that volume coming through. So, interesting to see the work of UNSSE in helping to support that. I mean, roughly speaking of your membership, like what sort of proportion do you think that you're talking to in relation to carbon markets or how they may be able to kind of get involved?
Anthony: [00:12:15] We're tracking even online database, where we track the number of exchanges in the world that are engaged in carbon markets, either voluntary carbon markets or compliance carbon limits. The majority are engaged in voluntary carbon markets. Off the top of my head, I think it's roughly about a quarter or so of our membership are engaged at this point. That's a moving target. More and more exchanges are interested in this space. And we didn't, you know, we didn't go into too much depth on compliance carbon markets. It's a very different animal. I mean, it's one of these things where they share a very similar name, very different things. It's an emissions trading scheme. And again, that's something where we've seen some exchanges in the world who do really excellent work. And that's just where the government set up the basic framework of an emissions trading scheme and then handed the whole thing to an exchange and said, here, trade this and exchanges. Of course, that's their you know, that's their bread and butter business. It's price discovery. It's trading. They can do that. It's relatively easy for them. And again this is important. Don't reinvent the wheel. You have the existing market infrastructure you know use that. That's a that's the advice we always give to policymakers on this front.
Jane: [00:13:29] I think the role that you play in terms of sharing best practice and connecting the dots is really important, isn't it? To your point, like don't reinvent the wheel. If one exchange is doing something well, then you know it can be replicated elsewhere.
Anthony: [00:13:42] Particularly on this front, this issue of the climate crisis when we're trying to tackle the climate crisis and, carbon markets are one aspect of the finance industry's response to the climate crisis. But the climate, the word crisis implies a certain sense of urgency. So we don't need to form a committee and study the issue for the next ten years and try and come up with a solution. We need solutions now, and we don't need some sort of future thing that's going to solve the problem. We need to look in the toolbox that we have in front of us right now and say, which one of these tools is going to help us right now. So that's why I think some of these things, when we look at whether it's carbon markets or we look at bond markets or equity markets, whatever we're looking at, people should take a look at what exchanges do and say, how can these tools contribute to combating the climate crisis right now?
Jane: [00:14:32] Okay, so moving on from carbon markets and climate to another part of the agenda, and that is kind of I want to take a look at how you spotlight certain issues. So there's I know that's part of your work is to really sort of shine a light on certain topics to help bring them up the agenda. And one example where you've done a lot of work is around gender equality in corporate leadership. And I saw that your 2024 analysis of over 2000 listed companies listed on the largest stock exchanges in the G20, so show some quite interesting trends. And I'm just wondering kind of why do you think that the UNSC has an important role to play on, say, this topic? And what does this analysis tell us? What are you hoping to achieve from it?
Anthony: [00:15:20] Well, we started working on gender equality just over ten years ago. And to be honest, when we first started working on it, we weren't sure if exchanges would be interested in this topic or not. We launched the Ring the Bell for Gender Equality events in 2015 was the first time we did it, and then there were seven exchanges that joined that first bell ringing event. Since the last few years, we've had over 100 exchanges in the world doing this event. It's become huge and you see ministers, heads of state joining these events. They become very popular. So exchanges care about this topic and their market participants care about this topic. So and I think that's an important point. You know we can test the waters and we can engage with our membership. But at the end of the day the question is what are the exchanges care about. And so this is something that they have definitely care about. It's definitely on their agenda. So to ring the bell for gender equality events was an awareness raising event. And awareness raising is very important. But you can't stop there. You know we don't want International Women's Day to become like, you know, Mother's Day. Here's a bouquet of flowers and tomorrow it's back to business as usual. Of all the sustainable development challenges we face, there's a lot of extremely important things in the world that are very difficult to measure.
Anthony: [00:16:35] But gender equality is not one of them. It lends itself to quantification. So if people are not measuring it, that is a question in and of itself. Why not? Why don't we have certain data points? So the SSE we try to contribute to broader global conversation to quantify these things. And for about five years or so now, we've been running these annual benchmarking exercises on women in corporate leadership, where we rank exchanges around the world on the border and gender equality of the exchange's top 100 issuers. And we've been doing that for the G20 for the last five years. But we've also done various other things where we'll look at, you know, all of the exchanges in Asia, all the exchanges in Latin America, all the exchanges in Africa and so on. Can we look at other data points, too, like a number of female CEOs? What percentage of companies have all male boards, these kinds of things. So I think what we're trying to do with that series, and it's part of a broader market monitor series that we have that covers different kinds of data points, is we're always trying to hold a mirror up to the marketplace. One of the things that sets the SSE apart from other sustainable finance initiatives when it comes to research, it's not the questions we ask necessarily.
Anthony: [00:17:50] It's our unit of analysis. Our unit of analysis is primary listening venue. And the reason why is if you take a, you know, most sustainable finance research, the target audience for that are asset managers. They're the ones who typically pay for that. And so that's the people who produce it. That's what they're producing it for them to consume. And asset managers, they really care. Their unit of analysis is typically popular indices. So if you've got an all-world index then they want to know okay what's the sustainability profile of that, but from a policy perspective, who's responsible for this all world index? Everybody in nobody. So you can't really have an impact that way by looking at primary listing venue. We can hold a mirror up to a market, and then we can ask the CEO of the stock exchange, do you like what you see in the mirror? We can ask the security market regulator, do you like what you see in the mirror? We can ask the Minister of Finance. Do you like what you see in the mirror? And if you don't, well, then maybe you should do something about it. And then we try to assist exchanges and policymakers with action plans and suggestions of what they could do.
Jane: [00:18:57] That's quite an interesting point around policy, because gender equality is effectively governed and managed very differently in different markets, isn't it? So, you know, from a from a strict allocations or quotas in some regimes versus a purely voluntary approach. And then somewhere in the middle, we see different approaches, and I know the UK has taken an approach whereby it's what, I guess what you'd call sort of soft policy, if you like, in terms of transparency, driving transparency around gender equality and corporate leadership. And we had a number of reviews to be able to track that on an annual basis. But what's your take on the different approaches being deployed?
Anthony: [00:19:43] It's good and it's natural that there are different approaches. I mean, all countries are different, all markets are different. Circumstances are different. So people can choose whichever approach gets them where they want to be. In our rankings of markets on boardroom, gender equality. Paris and London take the top two positions and Paris is number one. And they've got a mandatory minimum quota for women on boards. London is a very close second and they do not have a mandatory minimum. So it just goes to show you can achieve the same results with different policy approaches. And I think that's a good thing because if the only way in the world you could achieve the results that they're achieving in Paris with some sort of mandatory minimum. There are a lot of jurisdictions in the world where that is just a non-starter. You're just not going to have that conversation. Nothing's going to happen. So it's nice that we can point to London and say, well, you can also do it this way. This also brings up again what we talked a little bit about earlier. Why do we work with stock exchanges. The important role of exchanges, even if exchanges and in some jurisdictions exchanges have virtually no say on listing rules or anything like that, they still have a very powerful voice when it comes to normative guidance and voluntary standards. They can say this is a mainstream market expectation. This is what we're looking to. And that has a big impact. That does have a big influence. So that's an important role. And it's again, a reminder not just for gender equality but for other topics. There are different ways to achieve the results that we're all looking for.
Jane: [00:21:11] And that's something that you guys do right. You create sort of model guidance don't you. Which then is available to exchanges to effectively take and kind of make their own if they so wish. So it almost feels like you're taking kind of the heavy lift out of the work so that you're not getting exchanges replicating or coming from scratch. On that guidance, you create guidance on topics which are of interest to your member exchanges, and then they can take that and adapt it for their particular market circumstances.
Anthony: [00:21:42] Yeah, we have two different types of guidance documents. We have our action plans, which are really for exchanges, and they're full of best practices from exchanges around the world. And those always have some kind of action menu. And then we always create a menu where you can kind of choose a la carte what works best for your market. Because as I said before, exchanges are different. They've got different regulatory requirements, different product mixes, etc. so they have to pick the strategy that works best for them. And the other type of guidance we have is, as you mentioned, the model guidance, Our model guidance documents are written in the voice of an exchange, speaking to their issuers on a particular topic, and those guidance documents are written to help exchanges with what we always refer to as the blank page syndrome that we find. In many cases, exchanges are very willing and interested to provide guidance to the market participants on topic X, but they don't know where to start. They're staring at a blank page. Quite often on these sustainability topics, it can be a little bit overwhelming because there can be a lot of information and standards and so on out there. So where do you begin? And so that's the purpose of our model guidance. And it's a model. It's a template. Exchanges can copy and paste it. It's free intellectual property. It's not a standard. It's not carved in stone exchanges. Not only can they change it and adapt it to their markets, we encourage them to do that because we know all markets are unique. So, you know, and if an exchange wants to just delete the whole thing and write the whole thing from scratch themselves. Great. I'm happy for them. That's their prerogative. But what we're really trying to do is just to help, to speed that up and to avoid this blank page syndrome.
Jane: [00:23:24] Makes sense. I'm sure we could all do with its help in that regard. Now a topic rising up. The corporate and investor agenda is human rights. And I believe you're working on some guidance on modern slavery. So tell us more about what you're doing there.
Anthony: [00:23:41] Right. We are developing a model guidance on modern slavery, which will be, again, it's in the voice of an exchange, talking to their issuers and helping to educate issuers about this topic. I think many people can be forgiven for not appreciating how big of an issue this is. They're up to upwards of around 50 million people a year who are victims of modern slavery. That's not a small number that's bigger than a lot of countries. There are many companies who think, well, they're just a big modern company. They have not possibly been involved in this well. This is where companies need to be very careful about what are their supply chains look like, and so on. Many companies today, some of the biggest retailers in the world, I've spoken to them. You can ask them how many suppliers they have. They cannot answer that question. It's a funny thing. You know, it's always people assume every company knows who they were. They don't know. I used to work before my career in the UN. I used to work for a large multinational company that was operating in about 120 different countries. And I worked very closely with the board in the headquarters. And, you know, it was quaint in a way that they had only sort of a passing knowledge of what was happening around the world and their own companies and their own branches around the world who their suppliers were. You know, virtually no idea. So one of the key things in this area of modern slavery is, of course, there's three key points, which is avoidance. You know, avoid being involved in this in the first place. The second thing is detection. And then the last thing is of course if you do detect any incidences, remedy. So avoidance detection remedy. And that will be the purpose of our guidance is to help educate our participants. And exchanges can play a very important role in that. To educate their market participants in how to avoid instances of modern slavery.
Jane: [00:25:28] Sounds good. Anthony. So I'm conscious of time, and I've got one last question that I wanted to touch on in the context of sustainability. What do you think the capital markets are underestimating right now?
Anthony: [00:25:40] There are a number of things. Let me start with climate, because climate is really the pre-eminent issue for the humanity, and it will be the pre-eminent issue of this century. I don't care what we're reading about in the newspaper right now, 200 years from now, the history books of this century will be written about climate, climate and climate. That is the challenge we face. And we can all have fistfights on the deck of the Titanic. But that is not the real issue. So when it comes to the climate crisis 20 years ago for climate, if you wanted to understand climate change, you had to read a book. Now you just have to walk out your front door. It's apparent. And if you're not noticing it, you're not paying attention. Every day you can find a news item where you're seeing extreme weather events that are causing real material impacts to the marketplace. And I think this is one of the key things for market participants is to understand that, again, 20 years ago, the biggest conversation was about policy risk. What happens if governments make new policies that somehow create very severe material impacts to our business model? Now, really the conversation is about physical risk. You have significant parts of countries around the world where you're starting to see buildings lose their insurance coverage.
Anthony: [00:26:58] And sure, it's happening for homeowners, but it's also happened for factories. How much is an uninsured house worth? How much is an uninsured factory worth? You just have to start asking these questions. Nature is another area that we're working on, and nature quite often is the flip side of the coin of climate. It's but it is still distinct markets. It's amazing how much of the traded value of marketplaces is free. Stuff that falls out of the sky, gets dug up from the ground or, you know, comes out of the ocean. If you look like at an oil company, one of the biggest determinations of the valuation of that company is their proven reserves in the ground. And yet if you look at a listed fishing company, what is the proven reserves of fish they have in the sea? Nobody knows about that. It's sort of like, wow, this much fish last year. We hope to catch that much fish next year. We're investing in new ships. Whatever. Okay, but how many fish are there? What is the health of that fishing stock? What kind of measures are you taking place to ensure that it's going to be there.
Anthony: [00:28:04] It's obvious for soft commodities, any agricultural product. I think people don't realise is that it's also true for so many manufactured products right now. What's the biggest driving force of some of the biggest capital markets? It's the chips industry. Does anybody realise how much water is used to manufacture computer chips is enormous. In some of the countries that are the biggest manufacturers of computer chips. Does anybody have any sense of what the drought situation is like in those countries? So what happens when there's no more water to manufacture chips? So these are real things. Just here in Europe we had two massive heat waves in June linked climate crisis. People look at the nuclear energy industry that's going to help us get out of the climate crisis because of zero emissions electricity and so on. 17 out of 18 nuclear power plants in France, they had to throttle back their production because they didn't have enough water. Well, the water temperature is too high, is too hot to operate the plants. So nature's a huge thing that everybody needs to start taking into account and start to integrate into their sense of physical risk and their sense of resource management. We cannot operate companies without a healthy ecosystem surrounding us.
Jane: [00:29:16] Fascinating, and I think a perfect place to finish. Anthony, it's been really illuminating and really interesting to understand the role of the stock exchanges and the work that you guys are doing. It sounds really, really valuable and so long may it continue. Thank you so much for your time and sharing all of your experience today.
Anthony: [00:29:36] Thanks, Jane.
Jane: [00:29:36] Well, I hope you enjoyed that episode with Anthony from the UNSSE. And if you did, then please don't forget to follow us and rate us on Spotify, Apple Podcasts, or any other platform you use. If you've got questions, comments, or someone you'd like us to talk to, then do get in touch by email at fmt@lseg.com. That's all from me. But watch out for the next episode very soon.
