The Sustainable Stock Exchanges Initiative organized a global dialogue on sustainable capital markets.
The SSE report titled, ‘Securities Regulators Can Support the Sustainable Development Goals: A Sharing of Experiences,’ presents actions for and examples of securities regulators supporting the SDGs.
The 2007-2009 global financial crisis demonstrated that securities regulators play a critical role in economic stability. The lead up to that crisis also showed that “innovative” securities and “sophisticated computer programmes” may not be relied upon for prudent risk assessments. With increased economic impacts of climate change, securities regulators have added yet another item to their agenda: reducing systemic risks stemming from environmental and social pressures. Regulators understand that issues identified in the SDGs can create financially material risks and opportunities for investors and may affect the resilience of the financial system as a whole.
Seen through a more optimistic lens, some regulators are recognizing an additional purpose to their work, namely to promote the growth of sustainable instruments for capital formation and investments, such as green, social and sustainable bonds. This acknowledgment is arguably also demand-driven and stimulated not only by the financing needs to achieve the SDG targets, but also by a growing proportion of financial market participants, including investors and issuers, who seek opportunities where their financial or physical capital investments can generate social and environmental dividends while also producing financial returns.
Naturally, discussions of sustainable financing in capital markets address regulatory frameworks, market infrastructure, reporting and disclosure requirements, structural incentives and the role of relevant organisations. These matters and specific environmental, social and corporate governance issues, as well as the facilitation of sustainable investment, were addressed at the UN Conference on Trade and Development (UNCTAD) in October 2018 in Geneva, Switzerland. During UNCTAD’s 2018 World Investment Forum, the Sustainable Stock Exchanges (SSE) Initiative – a UN Partnership Programme of UNCTAD, the UN Global Compact, UN Environment Programme Finance Initiative (UNEP FI) and Principles for Responsible Investment – organized a global dialogue on sustainable capital markets. SSE also presented a report titled, ‘Securities Regulators Can Support the Sustainable Development Goals: A Sharing of Experiences.’
In its report, the SSE identifies five main action areas where securities regulators can, and already do, contribute to a more resilient financial system that better supports the SDGs within their mandate. These action areas are:
- Facilitating investment to support the delivery of the SDGs by aiding investment flows towards achieving the SDGs via financial products;
- Strengthening corporate sustainability-related disclosures by improving the quality and quantity of disclosures on environmental and social data;
- Clarifying investor duties on sustainability by guiding investors on the integration of sustainability into their decisions;
- Strengthening corporate governance to support sustainability by introducing board responsibilities related to environmental and social factors; and
- Building market capacity and expertise on sustainability by facilitating the training of market participants on sustainability topics.
The report presents 35 examples from securities regulators in 19 countries, representing a variety of regulatory and geographic contexts. The authors also explain how securities regulators can accelerate action through: research and analysis; development of roadmaps for sustainable finance; sharing experience and information; developing guidelines and standards; and collaborating with others.
What the report does not address, however, is the recent uptake of investments in innovations such as blockchain technologies, which impacts sustainable development investments, not only by revolutionizing global payment systems but also through changes to access to finance, supply chain management, digital identities or land registries through decentralized applications. As some have pointed out, this impact goes beyond traditional financial services and business processes, and extends to other industries important for the SDGs, such as agriculture, healthcare and transportation. UNCTAD’s World Investment Forum and the World Economic Forum have provided settings in which ideas on how to increase the positive impact and minimize the negative effects of blockchain technologies on investment for sustainable development are being exchanged.