ESG Summit 2020
World Markets

Inclusion and Transition – Let’s Realize the Opportunities

Companies are changing behaviors and new business ideas to support the transition are emerging. All this needs financing, and EU regulatory initiatives have great potential to play a central role for transition to a more sustainable society, says @Nasdaq's Fredrik Ekström.

This article was first published in Eurofi's Views, a bi-annual magazine comprised of contributions from a wide range of public and private sector representatives on recent regulatory developments and the main macroeconomic and industry trends impacting the EU financial sector.

At Nasdaq, we keep taking initiatives and develop offerings in order to support listed companies within ESG. Nasdaq is also in continuous dialogue with investors and other industry stakeholders around us to seek out new ways to support the investment community in its sustainability efforts. Our ESG Guidelines first introduced in the Nordics are now in place on our markets globally, as well as our ESG Data Portal and Sustainable Bond Network. Another example is the recent acquisition of Puro.earth, a global marketplace for carbon removal, a business which we aim to scale in order to address a growing demand for carbon removal around the globe.

Companies are changing behaviors and new business ideas to support the transition are emerging. All this needs financing, and EU regulatory initiatives have great potential to play a central role for transition to a more sustainable society.

Extending the Taxonomy to transitional activities will be very welcome. This will help companies provide clarity towards investors on what transitional activities need to be financed. Bonds are a very suitable instrument for financing transition. In Nasdaq’s Nordic markets, the Sustainable bond issuances already represent ~30% of all corporate bond issuances, and they are often significantly oversubscribed. It illustrates the strong demand from the investor side to contribute to financing of sustainability.

In this context I want to highlight the not yet realized potential of bond financing in general, and green bond financing in particular, for smaller growth companies and for smaller investors. Today, the wholesale bond markets have developed. Issuers and other stakeholders in the financial ecosystem tend to stay only in the wholesale segment, due to both the structure of the market and due to regulatory incentives in the Prospectus Regulation. I see an opportunity in revisiting the threshold in the Prospectus Regulation, to facilitate a development of a market for bonds with lower denominations. This would open up opportunities for smaller investors as well as smaller growth companies.

Based on the ongoing development of the Taxonomy we are already offering Green Designation of our equity market. Especially in the real estate sector this is developing. In general, I foresee that the Taxonomy will be the key regulatory instrument and I reiterate that the extension to transitional activities should be prioritized.

The expected development of a social taxonomy is also welcome. The social aspects are necessary not only in the longer term but also in the shorter term for the recovery from the effects of the pandemic. Nasdaq’s engagement for diversity and inclusion is manifested in many ways in the societies where we operate, in Europe, in the U.S. and beyond.

I also welcome the review of the Non-Financial Reporting Directive, as it responds to a need among both corporates and investors to be better aligned around sustainability reporting. Ultimately, CSRD needs to support more efficient capital allocation to more inclusive and sustainable growth.

The biggest opportunity with the CSRD is to provide European companies with one single reporting standard instead of several. This will provide clarity for both companies, investors and any user of sustainability reports. If the EU standard can build on already developed standards, that’s most useful, and if there can be convergence beyond the EU, even better.

Another opportunity is to provide a framework appropriately adapted for SMEs, supporting as many companies as possible to get onboard. From my experience working with the many growth companies that opt for public financing across our markets in Europe, I know that every company wants to be part of the transition towards a more sustainable future. Nasdaq has since long provided support, services and products tailored to growth companies. We know the transition cannot be done exactly the same by every company, but every company is taking steps.

In order to maintain as many options as possible open for financing for growth companies, we propose to subject all SMEs to the same rules on sustainability, irrespective of financing mix. Drawing the line as regards the scope of CSRD between companies with equity financing on public markets on the one hand, and companies financed with for instance bank loans or private equity on the other hand, is artificial. Drawing up an appropriate sustainability reporting standard for SMEs and making them voluntary for all, I believe, is the best way forward for supporting the most companies on the route towards sustainability while at the same time not raising additional barriers to financing on public markets.

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