Placing Capital Markets in Stakeholder Capitalism – The European Sting – Critical News & Insights on European Politics, Economy, Foreign Affairs, Business & Technology

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This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Laura M. Cha, President, Hong Kong Exchanges and Clearing (HKEX)

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

As we strive to emerge from the COVID-19 pandemic, the world is working together to create a more resilient and sustainable global economy. At the national level, we see initiatives like ‘Build Back Better’ and ‘Leveling Up’, while COP26 united the world around goals such as halting deforestation, phasing out energy in coal and achieving net zero by 2030.

When it comes to net zero in particular, the investment needed 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.

Capital mobilizes

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

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

Global investors large and small are championing environmental footprint over excess profits, social impact over short-term performance, and governance over growth at all costs. In an MSCI survey of 200 institutional investors managing approximately $18 trillion, 73% planned to increase environmental, social and governance (ESG) investing in 2021. In an alternative October 2021 survey of 800 individual investors by Morgan Stanley, 79% focused on sustainable investing.

So flows are growing, with ESG assets under management growing from $30.6 trillion to $35 trillion in 2020, according to Bloomberg estimates, and expected 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 and climate-resilient economic transition. Practitioners know we need to lead by example and turn investment flows into far-reaching fundamental changes.

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

Fundraising has spurred investments that have made core technologies competitive, as electric vehicles now stands at eight out of every 10 new cars sold in Norway and solar power is at or near parity in cost with power grids in many countries around the world.

Image: International Renewable Energy Agency, 2021

How to 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 propel the low-carbon transition.

This will require a solid range of sustainable financial products. Recent progress towards growing the green, social and sustainability (GSS) bond asset class is a great example of what can be achieved, with a record 227.8 billion dollars raised worldwide in the first half of 2021. Much more can also be done in other asset classes, such as ETFS, REITs and derivatives, and we need to step up our efforts to broaden our product horizons.

Image: Bloomberg, January 2021

More 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 key to creating the uniform ESG rules, or taxonomy, needed to govern the green and sustainable financial ecosystem.

We also need to recognize that capital markets issuers are at different stages on their journey to net zero. Here, the role of education is particularly important for companies that do not have expertise on ESG or climate-related issues, and which must comply with the information obligations required by the Task Force on Climate-Related Financial Disclosures by 2025.

At HKEX, we see ourselves as an agent of change in global markets with a key role to play in providing the framework, guidance, resources and support needed to help our stakeholders accelerate the adoption of business plans. green and sustainable, prioritize the development of industries that support a post-fossil fuel future and set in motion our ambitious climate action plans.

It’s 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 .