What Role Could the Markets Play in the Global Effort to Maintain 1.5 C?

Financial markets can incentivize and scale up sustainable technologies, carbon offset and removal markets and green initiatives across industries, helping to facilitate the transition towards a low-carbon economy. This is why part of 2023’s United Nations Climate Change Conference (COP28) is gathering world leaders and industry innovators to discuss the role of financial industries and markets in helping the world prevent the global temperature rising above 1.5 C. Nasdaq is at the forefront of these possibilities, helping to facilitate innovation, scale, and financing for organizations looking to reduce greenhouse gas emissions (GHG).

Markets Facilitate Innovation in GHG Reduction

Market-oriented approaches spur competition, transparency and trust to facilitate innovative climate technologies and methods of emissions reduction. These approaches can lower costs and attract climate-conscious investors, raising capital for corporates and institutions to implement their respective climate targets.

Major governments around the world believe in the power of markets to help innovate technologies that will lead to a lower carbon economy. According to the U.S. Environmental Protection Agency (EPA), market-oriented approaches may help spur innovation in emissions reduction in two ways:

• Market-oriented approaches put the burden of reduction on companies or agencies, incentivizing them to find lower cost and more efficient methods of carbon removal to meet emissions standards.
• Market-oriented approaches incentivize emitters to continue to innovate new methods of emissions reduction because it helps lower costs for their own climate journey through tax incentives, less carbon offset purchasing, and selling previously bought carbon offsets.

“We believe in the markets...we have 6,000 listed corporates around the globe that want to do good. They want to find trusted and robust tools to utilize,” said Tomas Thyblad, Nasdaq’s Head of environmental, social and governance (ESG) solutions for our European Markets speaking at COP28.

Environmentally conscious investment opportunities are growing and becoming more competitive, according to Goldman Sachs. In response, investors are getting more sophisticated, utilizing new and more advanced analytics and metrics that better track the environmental impacts of their portfolio.

Nasdaq has been part of this change in climate investing, helping companies stay competitive by collecting and reporting this data through our ESG Advisory solution, ESG analytics, and our new Nasdaq Sustainable Lens, which equips sustainability, investor relations, legal and accounting professionals with on-demand, data-driven insights from over 9,000 companies globally.

By helping companies attract environmentally conscious investors with digestible and verifiable data, Nasdaq helps innovate climate solutions, technology and company sustainability through raising capital.

Markets Facilitate Scaled GHG Reduction

Climate initiatives seek a global result, keeping the world’s temperature rise to 1.5 C as dictated in the Paris Agreement. However, government regulation is localized to the countries or regions they govern. For example, governments can regulate emissions within their borders, but they do not have direct power over other countries and governments. 

As a global marketplace operator, Nasdaq reaches multiple countries. Therefore, our global presence gives us a unique role in helping to scale market-based climate initiatives. One of these efforts is scaling carbon markets. Carbon markets create a monetary value for reducing and removing emissions, encouraging companies to invest in cleaner technologies and practices. 

Additionally, financial institutions are looking to the future to enhance liquidity and efficiency within the carbon markets by developing financial instruments, such as carbon offtake agreements or futures contracts.

Nasdaq currently has partnerships with two platforms that provide offsetting or removal of carbon emissions through carbon credits, Climate Impact X (CIX) and Puro.earth. 

The CIX Marketplace offers carbon credits sourced from a broad range of nature and technology-based projects. Estimates from the Natural Climate Solution Alliance suggest that nature-based carbon credits can support up to 30% of required climate change mitigation for a below-2°C pathway by 2030.

Meanwhile, Puro.earth is a standard and registry for carbon removals with high durability, allowing companies to neutralize their residual emissions with carbon credits based on engineered carbon removal. The carbon removal credits should only be seen as a complementary tool to the necessary emission reductions in the companies’ own value chain, but they are a necessary tool to handle residual emissions and thereby reach net zero.

At this year’s COP28, Nasdaq held a panel on financing the scale-up of carbon removals for attendees to gain valuable insights into how capital markets can become powerful catalysts for financing the scale-up of carbon removals, with a focus on financing decarbonization and responsible leadership across the ecosystem.

One of the insights from this panel was the essential role of markets like Nasdaq with the experience and technology to help scale up these markets, bring confidence and integrity to them for corporates looking for verifiable credits and removals. 

As part of that effort, this year we announced a new technology Partnership with Puro.earth that securely digitizes the issuance, settlement and custody of carbon credits. It will be provided to market infrastructures, registry platforms and other service providers globally.

“This is a great example of how our technology can support the growth of the voluntary carbon removal market, which still places a heavy reliance on manual interactions and onerous data collection tools. By providing a comprehensive set of APIs, alongside standardized contracts, Puro.earth can seamlessly interact with a full range of market participants,” said Gerard Smith, Vice President, Digital Assets & Carbon for Marketplace Technology at Nasdaq.

Markets Facilitate Climate Financing

Financial markets have the potential to accelerate a transition to a low carbon economy by helping companies raise capital to develop clean and sustainable technologies and aid investors looking for sustainable investments. Beyond raising capital through attracting investors, Nasdaq is also facilitating platforms that provide debt capital for climate projects. 

Raising debt capital is an essential avenue for many governments and companies looking to create safer and healthier communities. 

To help companies raise capital for their sustainable transition, Nasdaq launched the first Marketplace for Sustainable bonds in 2015. The Nasdaq Sustainable Bond Market helps raise debt capital for investments with clear benefits to the environment, social sustainability, or both, bringing investors to organizations looking to kickstart their climate initiatives and finance a more sustainable tomorrow.

These bonds have been used to finance climate and sustainability projects like reducing greenhouse gas emissions, cleaning the Baltic Sea, and even building affordable housing for people with developmental disabilities. 

Issuers looking to raise debt capital for ESG-related projects list their bonds in four categories:

• Sustainability Bonds: loans used to finance projects that bring clear environmental and socio-economic benefits. 
• Green Bonds: loans used to finance projects and activities that benefit the environment. 
• Social Bonds: loans used to finance projects achieving positive socio-economic outcomes with a neutral or positive impact on the environment.
• Sustainability-Linked Bonds (SLB): loans which characteristics or terms are dependent on the issuer's ability to meet pre-defined sustainability performance targets.

Meanwhile, to empower bond investors to evaluate the actual impact of their investments and for issuers looking to simplify their reporting and increase visibility, we created the Nasdaq Sustainability Bond Network. The bond network connects issuers of sustainable bonds with investors globally, empowering them to evaluate and report on the impact from their bond portfolios. The platform provides an efficient and easy-to-use portal that allows investors to see the impact they are making through their investments based on the U.N.’s 17 sustainable development goals and EU taxonomy.

The network currently has over 1,570 issuers across 75 countries and contains over 14,000 bonds. In the past year, the platform has grown 25% in listed volume, showing increasing interest by corporates and governmental issuers around the world.

Markets Facilitate Maintaining 1.5C

As world leaders continue to discuss how to implement results-oriented climate solutions, Nasdaq maintains its role as an innovator of market-based approaches to reducing GHG emissions, a partner to carbon markets and removal platforms and a guide to companies looking to raise capital to attract investment and achieve their climate goals. 

As the deadline of the Paris Agreement looms, Nasdaq continues to strive to help corporates, clients, and governments navigate their climate journeys to fulfill their individual stakeholder needs.