Responsible investing: Why we need sustainable stock exchanges

The main objective of the Sustainable Stock Exchanges initiative is to encourage sustainable investment by enhancing corporate transparency and performance on environment, social and governance aspects

Responsible investing: Why we need sustainable stock exchanges
A sound functioning stock exchange facilitates mobilisation of the financial assets and economic growth.

By Moinak Maiti and Parthajit Kayal

The stock exchanges of any country play an important role in economic progress. It is one of the main barometers for any country’s economic performance and liquidity position. The ongoing crisis resulting from the Covid-19 pandemic has put the entire world into a quandary. On the one hand, theworld is fighting the deadly disease and on the other hand, it is dealing with the  economic crisis spurred by the pandemic.

A sound functioning stock exchange facilitates mobilisation of the financial assets and economic growth. However, over a period of time, the structure, interconnection, and activities of the stock exchanges across the globe have changed significantly. Those changes in the global stock exchanges are mostly attributed to the unsustainable economic growth achieved by ignoring vital factors such as Environment (E), Social (S), and Governance (G). To promote sustainability of the global stock exchanges, the United Nations started a project named “Sustainable Stock Exchanges Initiative” in the year 2009.

Sustainable stock exchanges
The Sustainable Stock Exchanges (SSE) is a joint initiative of the United Nations Conference on Trade and Development (UNCTAD), the UN Global Compact, the United Nations Environment Programme Finance Initiative (UNEP-FI), and the UN-supported Principles for Responsible Investment (PRI). The main objective of the SSE initiative is to encourage sustainable investment by enhancing corporate transparency and performance on ESG aspects.  

Need for SSE
In the last few decades, we have witnessed several great crises that threaten financial stability—the Asian crisis, Subprime Crisis, Euro Crisis, and the ongoing Covid-19 pandemic. All these past events demand a global sound stable financial system and that is not possible without promoting the idea of sustainable investing. Stock exchanges represent one of the
important components of any nation’s financial system. The goal is to promote the idea of sustainable investment through stock exchanges in association with the investors, regulators, listed companies, and other market participants.

India’s progress towards SSE
The United Nation’s SSE initiatives to develop more sustainable and transparent financial markets gained significant momentum since its inception. India was at the frontier along with five other leading global stock exchanges to join the SSE initiatives in the year 2012. In the same year, Bombay Stock Exchange (BSE) also introduced first-of-its-kind two sustainable indices—BSE CARBONEX and BSE CARBONEX. Thereafter, more global stock exchanges from both developed and developing nations joined the SSE initiatives. Today the United Nations SSE initiative is tracking 114 exchanges across the globe.  

SSE initiative and UN SDGs
The SSE initiatives broadly cover six of the 17 UN Sustainable Development Goals (SDGs); namely, SDG 5 (5.5 Gender Equality), SDG 8 (8.3 SME), SDG 10 (10.5 Securities Regulation), SDG 12 (12.6 ESG disclosures), SDG 13 (13.3 Green Finance), and SDG 17 (Research, Consensus building, and technical assistance).

The current records show that globally there are 63 stock exchanges tracked by the SSE that provide written guidance on ESG disclosure. Similarly, 69 stock exchanges tracked by the SSE are providing SME listing platforms; 27 stock exchanges have mandatory ESG listing requirements; and 40 stock exchanges have ESG bond segments.

In a nutshell, the ongoing Covid-19 pandemic has already highlighted the importance of sustainable investment for the development of a stable financial system globally. The ongoing United Nations’ SSE initiatives would further promote transparent reporting and provide a comprehensive view of an organisation to the stakeholders. The coming times will witness more socially responsible investments that are beyond the existing scope of ESG. Thereby it would safeguard the investors’ interest in the long run. There is a lot to understand and achieve in the coming years.

Maiti is an associate professor at National Research University Higher School of Economics, Saint Petersburg and Kayal is an assistant professor, Madras School of Economics

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First published on: 05-01-2022 at 00:30 IST