Claire Dorrian, head of sustainable finance, capital markets and post trade at the London Stock Exchange tells Environmental Finance how the group is working to be a strategic enabler of sustainable economic growth and secure its reputation as a recognised sustainability leader in global financial markets.

Environmental Finance: How have you sought to make London Stock Exchange a hub for sustainable finance?

Claire Dorrian: The London Stock Exchange supports those businesses that are making a positive impact through their products and services and transitioning to the low-carbon economy. We play a key role in shaping the financial markets ecosystem and the move towards low carbon through policy advocacy, involvement in global sustainable finance initiatives, and through the provision of markets, data, products, and services. The depth and breadth of our markets give companies and funds access to the deepest pool of sustainable capital – across equity and debt capital markets.

In 2019, we created the Green Economy Mark, which we provide to companies and funds that can demonstrate that they have 50% or more of their revenues derived from green environmental products and services. We are proud to say that we have over 100 companies and funds that hold the Green Economy Mark.

We also have a leading Sustainable Bond Market and, last year, we created our Voluntary Carbon Market designation, which recognises funds and companies that are investing in climate change mitigation projects.

We are also engaged with ESG and climate policy and advocate for a harmonious reporting environment in the UK and beyond. We are also developing various ESG data products and services. We have an ESG disclosure tool and, in 2021, we created a Climate Governance Score and Tool that helps companies better understand where they are on integrating climate into their businesses and how they can interact with investors on that.

EF: How are you supporting the market with education?

CD: Our expertise and capabilities across the LSEG group helps us connect the different Gdata sets for analytics, ratings, and indices. We also have a comprehensive Issuer Services platform where we engage with companies on their ESG data and scores and provide wider access to ESG data covering over 300 data points on 10,000 companies in 76 countries.

We also provide regular sustainability-related content and training. For example, we have recently partnered with United Nations Sustainable Stock Exchanges (UN SSE) to provide climate disclosure training. That is made available to all listed companies on our markets. We have also produced Climate Reporting Guidance which is tailored to the UK's regulatory and policy environment for public companies. The guidance helps companies in London integrate climate risks and opportunities into operational decision-making and report carbon performance.

EF: What is your approach to industry initiatives and policy engagement?

CD: In the UK, we have been involved in the UK Transition Plans Disclosure Framework via our task force membership. We have also been providing significant advice and support on the development of the UK Taxonomy through the Green Technical Advisory Group. Our FTSE Russell business has a green revenue classification system which is essentially a green taxonomy and is closely aligned to the EU taxonomy. We have a lot of expertise and institutional knowledge around the development of green taxonomies internationally.

We are also members of various net-zero initiatives, including the UN Sustainable Stock Exchange Initiative and the Glasgow Financial Alliance for Net Zero (GFANZ). As part of the Net Zero Financial Services Providers Alliance (NZFSPA) we have also committed to ensure that our products and services support the net-zero ambitions of the companies that list with us.

Through the UN SSE we've been active in spearheading the development of climate reporting guidance and looking at how that can support companies globally in disclosing in line with the Task Force on Climate-Related Financial Disclosures (TCFD).

We have also been active in several carbon market initiatives, such as the UK Voluntary Carbon Markets Forum and the Integrity Council for the Voluntary Carbon Market. Our work in carbon markets has been important as we've sought to participate in that market in a very different way from other exchanges. Others have focused on becoming trading platforms for the carbon credits, whereas we're focusing our offering on channelling finance into climate change mitigation projects.

EF: How will you help channel finance into these projects?

CD: Demand for voluntary carbon credits is only going to grow as they play a role in the low-carbon transition. However, not enough finance is reaching new climate change mitigation projects.

Furthermore, companies want access to a long-term supply of those carbon credits. When we first started thinking about this before COP26, there was a growing consensus we need a scalable approach to voluntary carbon markets; one that can deliver a rigorous, market-based approach for investment into carbon projects.

In October 2022, we launched our Voluntary Carbon Market designation. We are the first exchange to have launched rules for close-ended investment funds and companies that are financing carbon removal and reduction projects. We also wanted to bring transparency to the market under an established public market framework.

Investment funds or operating companies can be admitted to the London Stock Exchange's markets and raise capital from investors. That money is then invested into climate change mitigation projects, whether that be focused on areas such as carbon capture or reforestation, or nature-based solutions. The fund or company can then issue a dividend in specie, in the form of a carbon credit.

We are aligned with recognised carbon market standards, we are leveraging the market infrastructure on our exchange, and we are providing companies with a transparent way to access a long-term supply of carbon credits when they might have ordinarily participated in an OTC market.

We've received a lot of positive feedback and we are actively developing the pipeline for further listings. We need a critical mass of different types of funds: from nature-based funds to blended portfolios to carbon-capture technology funds. It's a new, innovative exciting part of the market to be involved in. We think it's one of these long-term market opportunities to watch.

EF: What emerging themes should stock exchanges be paying attention to?

CD: There is limited consensus around what constitutes best practice with respect to preparing climate transition plans. That needs continued focus. The concept of a just transition is also still being understood and defined.

More collaboration, education, and understanding are needed on a global basis to harmonise different regulations, taxonomies, and ESG scores.

Underpinning this is a lack of standardised data. Fragmented data hinders informed investment decisions. We were an early supporter of TCFD and are a strong backer of the ISSB's work to develop global baseline sustainability reporting standards, building on the TCFD framework. In 2022, we published a policy paper that calls for policymakers to introduce disclosure rules aligned with the ISSB's standards on an economy-wide basis by 2025.

Another area that is of interest is biodiversity and nature. That is now a question that is coming up in boardrooms and in conversations with stakeholders and investors as its intrinsically linked to climate change. The Taskforce on Nature-related Financial Disclosures (TNFD) is close to completion and will hopefully provide a global standard. But it needs to be better understood, from an exchange perspective, and from a data perspective as well.

For more information, see: londonstockexchange.com