Purpose and practice: how capital markets can create a sustainable future

The World Economic Forum in Davos means many things, but this year’s event has a special significance after a two-year Covid-induced hiatus: it signals that the world is gradually returning to normality after the widespread disruption of the past few years.

But while an increasing number of us can now travel freely and make the personal connections we crave, the new world we find ourselves in is undoubtedly different to the ‘normal’ of pre-pandemic times.

We will no doubt cover the changes at this year’s event, but we will ask ourselves: how we have grown, what have we learned and how we can apply our experiences to create a better, more sustainable future.

The pandemic has taught us three main lessons:

1) Mutual trust among individuals, communities, corporations, countries and governments is essential to achieve the change we want to see.

2) Tackling global challenges like the pandemic and the onset of climate change requires connections, unity, partnership, collaboration, and a whole-of-society effort.

3) The resilience we seek in our societies and economies depends on the investments we make and the institutions we build now.

On unity and investing, I am encouraged to see the world coalescing around the imperative of addressing climate change at events like COP26 and the speed at which investors from all over the world are mobilizing to finance the net carbon transition with flows into ESG funds alone growing by $596.2 billion in 2021.

The world still needs transformational change to fight climate change and it needs it fast. The 2022 World Economic Forum Global Risk Perception Survey shows that only 2% of risk management experts globally believe steps to mitigate climate change so far are going to be effective.

How then do we as companies and organizations go further and apply the lessons we have learned to connect and inspire our stakeholders and drive the progress we all want to see?

It starts with leadership, because society is looking to leaders to serve as trusted role models, drive and define the speed of action on climate change, determine acceptable standards of corporate governance and to set our actionable plans on everything from diversity to decarbonization.

Building trust, providing leadership and inspiring change starts with a clear statement of purpose. At HKEX, our purpose is to connect, promote and progress our markets and the communities they support for the prosperity of all.

But words are not enough, and the world is demanding that we put purpose into practice. Our commitment to the Glasgow Financial Alliance for Net Zero (GFANZ) is a great example of this. GFANZ is a global coalition of 450 leading financial institutions joining together with a common purpose – to accelerate the transition to a net-zero economy.

By making a net zero pledge, developing business plans for a low-carbon resilient future and then implement those plans. By doing this, we are committing to ensuring the sustainability and prosperity of the next generation.

We, and capital markets operators and regulators all over the world, can and must go further because our influence and reach are so broad. We must put purpose into practice so that we can create opportunities.

Firstly, we need to develop a sustainable finance ecosystem to connect capital with opportunities in the ESG space. Creating platforms to provide information, access, and transparency on a wide range of sustainable, green, and social investment products, like green bonds, can be an effective conduit linking investors and issuers. This will help channel capital to fund the net carbon transition.

Secondly, capital markets must play a role to promote ESG awareness, enhanced regulations, and high standards of responsible corporate governance by advocating for and introducing strong ESG disclosures. They too have a leading role to play in educating issuers about evolving ESG requirements and how to integrate ESG considerations into their business strategies. HKEX’s new regulations announced in 2021 on ending single-gender boards are a great example of how regulators can promote high standards of corporate governance.

As the investment world grows more exacting in its expectations of companies’ ESG performance, the standards that capital market regulators enforce around disclosures can eliminate greenwashing and provide the transparency that investors need to match their investment goals with ESG opportunities, which in turn can provide the capital to drive the net zero transition.

Thirdly, by walking the talk on sustainability and encouraging new ways of thinking and operating, we as regulators and participants can lead by example on ESG disclosure and reporting. In areas such as promoting diversity and inclusivity around gender, families, and LGBTQ+ in the workplace; supporting employee wellness with internal wellness workshops and external activities; and invigorating our communities through meaningful philanthropy that drives societal change. We are proud of our work through the HKEX Foundation and our broad CSR agenda to be leading the charge in Hong Kong on these fronts.

We firmly believe that every one of us – nations, corporates, and individuals - can be part of the climate solution, and we believe that capital markets can act as vital change agents on this urgent and pressing need.

As critical infrastructure, connectors, and platforms that transcend borders, capital markets have a responsibility to help lead by example, influencing companies and economies in their transition towards more sustainable practices, helping ensure that investors are prepared and empowered to finance that change.

With both a clear purpose and an actionable agenda, we look forward to continue to play a pivotal role in our community, bringing in the global sustainability journey. Please join us in creating a future in which we can all thrive.