World Federation of Exchanges, ESG

WFE Survey Finds Investor Demand for ESG Disclosure

The World Federation of Exchanges has published the results of its sixth annual Sustainability Survey, which captures the nature and extent of member engagement with Environment, Social and Governance (ESG) issues in both developed and emerging markets.

The global industry group for exchanges and CCPs partnered with the United Nations Sustainable Stock Exchanges (“SSE”) initiative to define and publish ‘How exchanges can embed sustainability within their operations: a blueprint to advance action’.

ESG is a core strategic mandate and principle of the WFE. The entity’s Sustainability Principles, published in October 2018, state that exchanges will work to educate participants in the exchange ecosystem about the importance of sustainability issues; promote the enhanced availability of investor relevant, decision-useful ESG information; actively engage with stakeholders to advance the sustainable finance agenda; provide markets and products that support the scaling-up of sustainable finance and reorientation of financial flows, and establish effective internal governance and operational processes and policies to support their sustainability efforts.

A total of 61 exchanges participated in this year’s survey, of which 56 are WFE members. Of the 56 WFE member respondents, six are derivatives-only exchanges. The survey found that exchanges continue to develop sustainability efforts through strong engagement with the WFE Sustainability Principles. Among those exchanges that responded, 41% had initiatives that correspond to all five Sustainability Principles.

ESG is becoming an integral part of exchanges’ strategies and ethos as a marked number of operators were encouraged by the new opportunities arising from their sustainability engagement.

Close to 90% of the responding exchanges perceived investor demand for ESG disclosure, of which 29% believed demand to be extensive. The majority of exchanges do not require assurance on ESG disclosure, but the number of exchanges planning this requirement in the future almost doubled.

There is still no convergence on ESG standards and formats adopted by the exchanges industry. Green bonds became the most commonly offered ESG products for the first time.

Nandini Sukumar, Chief Executive Officer, the WFE, said: “The exchange industry leadership of sustainability continues to evolve. As the world seeks to rebuild a better, more inclusive society amid a global pandemic that has challenged many widely-accepted practices, exchanges are leading by example and are determined to be part of that solution.’’

The WFE was founded in 1961 and it currently represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of its members, 35% are in Asia-Pacific, 45% in EMEA and 20% in the Americas. WFE’s 57 member CCPs collectively ensure that risk-takers post some $800bn (equivalent) of resources to back their positions, in the form of initial margin and default fund requirements. WFE exchanges are home to nearly 53,000 listed companies, and the market capitalization of these entities is over $93 trillion; around $88 trillion (EOB) in trading annually passes through WFE members (at end 2019).