It’s hard to argue against the merits of sustainability, but making it into investable products is a work in progress among members of the financial community.
Speaking on the topic on the final day of FIA’s Boca conference Thursday, exchange leaders jockeyed for position on which exchange would lead the charge to make sustainability trading viable. Virtually all global exchanges now have at least one ESG offering, but Eurex CEO Michael Peters noted that his exchange has been a leading proponent of sustainability products in Europe for about two years.
Adena Friedman, president and CEO of Nasdaq, noted sustainability products are a “marturing element” of the European economy. Corporations are really engaging with the area in Europe, she noted. “It’s quite impressive, frankly, how far Europe has come, how aligned the overall ecosystem is on how to find a more sustainable way to run businesses, and also on how to address social and governance issues,” she said.
The U.S. is now catching up, Friedman said. “You are seeing an enormous amount of innovation coming in to support companies as they are thinking about ways to begin to create sustainable businesses and carbon offset markets, sustainable bonds to raise capital … as well as to help investors understand what they are doing and make sure they are reporting it in a way where they get credit for it on the investment landscape.”
The way Nasdaq is getting involved is to “really support the corporates,” she said. The exchange operator has a sustainable network and a sustainable bond market its Nordic subsidiary. The goal is to connect corporations with investors as they raise capital through sustainable bonds, she said.
Nasdaq also has a new advisory program designed to help companies manage their ESG programs internally and communicate their programs to investors through a reporting tool called OneReport that reports that information in one place and goes to rating agencies.
“We have been really leaning in on the corporates,” Friedman said, “and that’s because we have 4,000 listed companies. That’s our role today, but I do think it’s going to evolve to help the system become more sustainable,” she said.
She added that “we have to be very mindful, not only of the benefits, but also of the burdens you put on companies — how specific some of these sustainable metrics need to be.”
As for the social and governance pieces, Friedman said Nasdaq will continue to play a leadership role on governance as it pertains to diversity. “We’re not a leader globally in this,” she acknowledged, “but in the U.S., we are taking a leadership role to move that forward.”
A half-dozen financial market executives weighed in during a session Immediately following the remarks by exchange leaders. Among them was Meaghan Muldoon, global head of ESG integration for BlackRock.
In 2020, BlackRock pledged to make sustainability at the center of its investment process, putting it at the core of our process, Muldoon said. “We believe sustainability is as important in our traditional portfolios as it is in our portfolios with specific sustainability objectives,” she said.
She said the firm is emphasizing the importance of disclosure, as well as supporting mandatory reporting standards.
“We believe climate risk is an investment risk, which is why we are advocating alignment with a core set of [a single global] standard,” she said. “Material considerations are important for our investors to understand.”
As an asset manager, they want to deliver clients products that meet their financial objectives, she said. At the core of this are data, analytics and tools, she said. “We are in the land of abundance in terms of data,” Muldoon said, but we want to be sure what we use is reliable and have the tools for investors to integrate them into their own processes.
On the other side of the market spectrum was Edward Monrad, head of European cash market structure at Optiver. “ As a liquidity provider, our role is to jump in,” he told FIA attendees. With ESG products, Optiver has found it needs to provide market liquidity earlier than with some other products, he said. With ESG, “we have to just jump in and trust.”