COP28: Exchanges and regulators focus on supporting the transition to Net Zero economies

5 December 2023

4 December 2023, Abu Dhabi, UAE – At the COP28 climate negotiations, the United Nations Sustainable Stock Exchanges (UN SSE), in collaboration with International Organization of Securities Commissions (IOSCO) and UNFCCC, convened leaders from security market regulators, standard setters and stock exchanges to provide insights on actions that stock exchanges and regulatory authorities can undertake to advance the transition towards a sustainable, climate-friendly future. As governments meet once again to discuss progress on combating climate change, the need for the capital markets to enhance their contribution to this effort is needed more than ever.  The panel discussion was opened by Martin Moloney, Secretary General of IOSCO and moderated by Anthony Miller, Chief Coordinator of UN SSE.   “Today there is great alignment in the efforts of exchanges, regulators, standard setters and market participants towards the goal of sustainable finance that leads to a net-zero emissions economy. There is much work to do on the capacity building front, but clear global standards are emerging that all market participants are rallying behind,” said Mr. Miller.  In his introductory comments, Mr Moloney noted the work that IOSCO has been doing in relation to carbon markets, and particularly the role that regulators and exchanges can play in contributing to address some of the challenges that are experienced in relation to financial integrity and liquidity in these markets. “What is needed is a globally consistent regulatory framework to provide clarity on matters such as issuance, retirement, definitive custody arrangements and pricing data. Many of these aspects fall within the core skills of exchanges, and so the prize for a globally traded voluntary carbon credit market that funnels investment from developed countries to emerging markets is still on the table,” he concluded. The panel discussion addressed the key areas where stock exchanges and their regulators can play a crucial role in the innovation of financial solutions that bolster climate-positive initiatives and the promotion of climate action among companies. Through the development of climate-aligned products, services, and rules, exchanges hold a pivotal role in enhancing the climate resilience of their markets. Exchanges also assume significant importance in facilitating the adoption of new climate-aligned standards and the dissemination of climate-related information across financial markets. Exchanges can contribute to the transformation of markets towards a net-zero future by implementing guidelines, benchmarks, and educational initiatives. Climate Disclosure Building on the SSE’s technical panel at COP28 earlier in the day, participants of this high-level discussion reiterated the important step taken in capital markets with the issuance of the IFRS Sustainability Disclosure Standards S1 and S2.  “A big shift in the market that needs to be recognized is that just last year when we met at COP27, there were no IFRS standards on sustainability - and today there are.” said Mr. Miller. “Every year we are making progress, but we must accelerate our actions.” “Stock exchanges play an important bridging role between investors and enterprises, including for transition finance. I’m very excited that each COP has been a step forward for ISSB, without sacrificing the rigor needed for standard-setting.” said Jingdong Hua, ISSB Vice Chair, IFRS Foundation. Mr. Hua continued by noting that a major challenge facing them now is to build capacity at a sufficiently large scale and fast pace needed. “Capacity building is an integral part of our commitment, to ensure that Global South and Global North are equally equipped and ready to adopt. The joint training initiative we launched recently with the SSE is instrumental to this commitment.” “International standardisation is enormously important to create a level playing field,” said Julia Hoggett, CEO, London Stock Exchange. “We are doing everything we can to back the standards.”  Carbon Markets Several of the panelists commented on carbon markets which is turning out to be a key discussion topic at COP28. As an area seeing increasing involvement from exchanges, the developments in these markets are being watched closely. The release of consultation documents by both IOSCO and the US CFTC are aimed at promoting integrity and efficiency in these markets and will also support efforts by exchanges to scale the growth. Yoshida Masanori, Executive Officer of the Japan Exchange Group commented that their voluntary carbon market is slowly ramping up, and the exchange is also exploring extension into the compliance market as well. “Standardisation of products and disclosure are critical to ensure a credible market, along with cooperation with regulatory authorities,” he observed. Ms Hoggett added: “The lack of verification capacity remains a challenge, coupled with the need for an injection of more capital into the market. Ongoing monitoring of credits needs to be in place before focusing on trading.”  Ahmed Rushdy, Executive Director, Regional Centre for Sustainable Finance, Financial Regulatory Authority (Egypt) shared some lessons learnt when the Egyptian voluntary carbon market was launched in 2022. “In order to ensure a credible and efficient market, there is a need for a clear regulatory framework, clarity on the legal definition of the carbon credit as a financial instrument, and ongoing stakeholder engagement with both the supply and demand side of the market.” In the case of Egypt, a high-level cross-functional committee oversaw the development, thus aiming to create a credible environment for validation & verification. Capacity building and technical assistance for participants is a key focus area going forward. Net zero Three new exchanges also announced at COP28 that they joined the Net Zero Financial Service Providers Alliance (NZFSPA). Part of the Glasgow Financial Alliance for Net Zero (GFANZ), the NZFSPA signatories are a range of global service providers organized into 4 groups (index providers, auditors, stock exchanges and research, rating & data providers), who are committed to raising the urgency of net zero alignment and integrating net zero alignment into relevant services and products offered to capital market participants. Alice Carr, Executive Director of Public Policy at GFANZ welcomed the new exchanges. “Congratulations to the new members of the Net Zero Exchange Group of the NZFSPA. The more firms that show commitment to net zero, the quicker change can happen. Exchanges are showing huge leadership in this space, in their own journeys as well as in business areas such as data, carbon credits and disclosure.” With Japan Exchange Group, Latinex and Philippine Stock Exchange joining, the Net Zero Exchange Group is now 11 members strong, representing a 37% growth in the largest group within the Alliance. Japan Exchange Group and The Philippine Stock Exchange both participated in the panel event, announcing their new commitment.  “It is the strategy of the exchange to reach net zero by March 2025. Joining the alliance provides a further institutional push towards this goal,” said Yamaji Hiromi, Director & Representative Executive Officer, Group CEO, Japan Exchange Group, Inc. in a statement.  “JPX is committed to aiming for a sustainable economy by developing the capital market into one that can coexist with the environment, as set out in our Environmental Vision and Policy and Green Strategy. We are delighted to take this commitment one step further by joining the NZFSPA. We look forward to proactively exploring what we can do as an organization underpinning the financial community to further the cause of net zero.” “Organized marketplaces and exchanges can be effective enablers, if not champions and change agents, of the economic transition to net zero through products and services based on standardized disclosures of material information that ultimately create a virtuous circle of sustainability in the capital markets and, more importantly, in the real economy,” said Roel Refron, COO, The Philippine Stock Exchange.  The role of regulators Regulators are working with their exchanges to align market regulations with climate goals in an effort to assist their markets in becoming more climate resilient and better positioned to attract investment in climate action and protect long-term investors from climate and transition risks. “We met with Anthony at COP22 (in Marakesh). And back then as a regulator, your institution was the first we contacted to help us address these issues on carbon markets. We were one of the first regulators to join the SSE,” said Nezha Hayat, Chairperson and CEO of AMMC – Morocco's Capital Market Authority. Ms Hayat continued to say, “We are committed to sharing expertise on sustainable finance, we are in dialogue with issuers and the next step is investors.” “The role of regulators is to create an environment that paves the way for the transition, and to promote innovative markets like carbon markets. What you cannot measure you cannot change is a principle that is applicable in carbon markets, all the entities need to know how much emissions need to be offset,” said Mr Rushdy “ESMA has been involved in initiatives on the disclosure of climate-related finance and also in the way this is communicated and beyond this in initiatives for transparency when it comes to benchmarks and ratings,” said Verena Ross, Chair, European Securities and Markets Authority (ESMA). She continued to emphasize the importance of this transparency to build trust.  Christy Goldsmith-Romero, Commissioner at the US CFTC emphasised that commodity markets are impacted by real world issues such as drought, food scarcity, energy security. That there is a need to move from responding to events to more proactive resilience in the face of climate change. This entails better risk management and innovation in products. 

About the SSE

​The SSE initiative is a UN Partnership Programme organised by UNCTAD, the UN Global Compact, UNEP FI and the 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 organizations, can enhance performance on ESG (environmental, social and corporate governance) issues and encourage sustainable investment, including the financing of the UN Sustainable Development Goals. The SSE seeks to achieve this mission through an integrated programme of conducting evidence-based policy analysis, facilitating a network and forum for multi-stakeholder consensus-building, and providing technical assistance and advisory services.