Stock exchanges provide a platform for individuals and businesses to buy or sell shares as well as raise long-term capital. In order for stock exchanges to continue playing such crucial roles, changing dynamics require that they integrate sustainable practices in their operations.
In that regard, global partners such as the United Nations Sustainable Stock Exchanges (SSE) Initiative in collaboration with the World Federation of Exchanges (WFE), in September 2019, officially launched a new comprehensive guide entitled ‘How exchanges can embed sustainability within their operations: A blueprint to Advance Action’. The blueprint was developed at the backdrop of the Sustainable Development Goals (SDGs) with valuable inputs from experts in thirty-one (31) stock exchanges around the world, including Namibia, Egypt, Nigeria and South Africa.
The blueprint highlights four focus areas with four other fundamental considerations on how exchanges can implement sustainability practices across their businesses. It is envisaged to enable them to capture new opportunities, mitigate risks, enhance their reputation while promoting innovation. This script attempts to engage stakeholders in Ghana on the issues by exploring the ‘four-in-four approach to the sustainability of stock exchanges’.
The blueprint highlights these four (4) focus areas which stock exchanges must consider:
- Ensuring sustainability is integrated into the exchange’s strategic planning. Hence, the integration of sustainability into an exchange’s strategy and business plan should occur at the outset of the strategy development process, and form part of its vision and mission.
- Governance and risk management
It provides that an exchange’s senior management and leadership team should show commitment to embedding sustainability; sustainability should also be incorporated within the exchange’s structure and mandate.
- 3. Environmental and Social Governance (ESG) Impact, covering management of the exchange’s direct impacts:
Thus, exchanges should be able to leverage existing sustainability management resources to identify and manage the impact of their operations on the environment and society. The exchange should develop policies, processes and procedures to address these operational priorities, which should be monitored and evaluated to track progress.
- Dedicated resources, to enable the sustainability-work to move forward
In this case, either an individual or team should be responsible for overseeing the implementation of an exchange’s sustainability work-plan. Fostering a broader sustainability culture, along with awareness programmes, can further steer an exchange toward improved sustainability. Initiatives can include greater communication of sustainability progress; an increased emphasis on recycling and energy efficiency; and opportunities for involvement such as volunteering.
Concerning the four (4) fundamentals considerations, the global partners identified materiality, stakeholder engagement, reporting and capacity-building.
Apart from considering such factors which influence materiality, sustainability issues which could be relevant to exchanges include the following:
1a) Strategic matters
These consider issues including competitive positioning and differentiation; Socio-economic developments and political climate; technological disruptions; and changes to the market profile as a result of the impact from social and environmental shifts.
1b) Operational matters
In this case, a stock exchange’s sustainability practices should consider market stability and business continuity; fair labour practices; remuneration (to attract and retain scarce skills); and the response to relevant environmental risks (such as climate risk and operational impacts).
1c) Regulatory pressures
- Increasing regulation (for example, on matters such as governance and disclosure).
- Stakeholder engagement
The blueprint emphasises stakeholder engagement as a critical role across each of the focus areas. Hence, it reveals that awareness of the relevant stakeholders and their sustainability-related needs and interests will ensure that an exchange is positioned to be responsive to existing stakeholder concerns, and anticipate concerns which may become priorities in the future.
To optimise stakeholder engagement on sustainability, exchanges have been advised to consider:
2a). Mapping stakeholders of the exchange and the relevant sustainability issues to identify any gaps in coverage of engagement with particular stakeholders or on particular topics.
2b). Prioritising stakeholders based on their value to the exchange, their level of interaction with the exchange, and the extent to which they may be affected by the exchange’s activities. Note that some stakeholders may have an indirect relationship with the exchange (such as asset owners).
2c.) Developing engagement and feedback processes (or adapting existing processes) to ensure the integration of sustainability issues.
Also, it has been stated that engaging with stakeholders on sustainability should be an ongoing process with the aims to:
- Obtain input to processes of determining material matters, risks and opportunities;
- Provide feedback on strategies and actions being implemented as well as progress; and
- Address matters of concern and resolve issues.
The report recognises that while transparency regarding an exchange’s sustainability performance is important, the necessary disclosures should be seen as the result of a process rather than an end in itself. The blueprint therefore states: “Starting with the actions described in the different focus areas – and ensuring that the appropriate systems, structures and policies are in place – will allow an exchange to provide quality disclosure on sustainability priorities, metrics and progress. The extent of reporting can gradually be broadened as integration and data availability increase”.
On capacity building, the global partners posit that embedding sustainability into exchange operations relies on the leadership and staff being informed about trends and developments concerning sustainability – and then being equipped with the knowledge, skills and abilities necessary to act.
“While building capacity can manifest as a focus on education and training, the ultimate goal is to ensure that individuals are empowered and the organisation strengthened through the establishment of new institutions or strengthening old ones. To support capacity-building efforts, an exchange may wish to determine a baseline that informs where there are gaps in knowledge and/or systems.”
The global partners re-emphasise the fact that integrating sustainability into core strategy can help exchanges better-align their practices with the current and future policy landscape. As a business, an exchange has its impacts on the environment and society, which need to be managed to minimise negative outcomes and support value creation. In due course, it is expected that a culture of sustainability-awareness will permeate throughout the exchange as it pursues sustainability as part of its vision, values and purpose.
About the SSE/WFE
The Sustainable Stock Exchange (SSE) initiative is a UN Partnership Programme organised by UNCTAD, the UN Global Compact, UNEP-FI and the Principle for Responsible Investment (PRI). The SSE’s mission is to provide a global platform for exploring how exchanges, in collaboration with investors, companies (issuers), regulators, policymakers and relevant international organisations can enhance performance on environmental, social and corporate governance issues; and encourage sustainable investment, including financing of the UN Sustainable Development Goals.
The World Federation of Exchanges (WFE), on the other hand, is the global industry group for exchanges and clearing houses around the world – representing over 250 market infrastructures ranging from those that operate the largest financial centres to those that run frontier markets. Founded in 1961, the Federation was set up to contribute to the development, support and promotion of organised and regulated securities markets to meet needs of the world’s capital markets in the best interests of their users.
Thank you for reading, I welcome your feedback or comments on this script. God bless You!
This script was written by a Chartered Banker with a flair for feature writing. He works for a company which provides financial services. Apart from his work schedules, he edits or proof-reads corporate material for his colleagues, executive managers – including distinguished professionals working in various fields outside Banking. Through this column, his articles feature on third-party online media platforms in Ghana and outside. Email: Kwaku.Anumu@gmail.com