Anthony Miller: “If you’re not investing in Africa, you’re not investing in the SDGs”


As the coordinator of the United Nations Sustainable Stock Exchanges (SSE), Anthony Miller has managed this dynamic initiative since its launch by UN Secretary General Ban Ki-moon in 2009. A specialist on CSR, corporate governance, and responsible investment, he is also the focal point for corporate social responsibility within the Investment and Enterprise Division of the United Nations Conference on Trade and Development (UNCTAD).


Stock exchanges are exceptionally positioned to advance climate disclosure and educate issuers on climate-related opportunities in their markets. By helping investors and listed companies with their own net zero commitments and by promoting consistent reporting practices, they can strengthen the climate resiliency of their markets. As such, they play a crucial role in helping locate the trillions needed to support the transition to net zero.


The SSE was launched more than a decade ago with just five founding exchanges. The initiative provides a global platform for exploring how exchanges, along with other stakeholders, can enhance performance on environmental, social, and corporate governance (ESG) issues and how they can encourage sustainable investment. Today, the platform counts over 110 partner exchanges worldwide, 61 of whom provide guidance on ESG reporting. In the last year, six of these partner exchanges pledged net zero commitments by 2050 by joining the Glasgow Finance Alliance for Net Zero.


In this exclusive interview with Crescent Leaders, Miller discusses the remarkable work of the SSE, which was named by Forbes magazine as one of the “world’s best sustainability ideas”. After 12 years of managing this initiative, he shares his opinion on critical issues such as mandatory versus voluntary ESG-related disclosure, the sustainability reporting gap between listed and unlisted companies, and the huge strides exchanges are making towards integration of sustainability into their practices. He also sheds light on the persisting misconceptions about emerging markets which are preventing SDG investment from going to places that need it most.


The Sustainable Stock Exchanges (SSE) initiative has 110 partner exchanges in its membership base, in addition to a number of observer exchangers and regulators. How did you manage to attract so many members?


We don’t focus on outreach at all. We’re very much focused on working with the exchanges that are already members. Almost every exchange in the world is already a member of the SSE. Recent exchanges to join were the stock exchanges of Uruguay, Bermuda, and Guatemala, and like many exchanges they’re keen to do more work around sustainable finance.


Most exchanges today are gearing up their work on sustainable finance. It’s like if you pour a pitcher of water on your desk, that water will flow into every corner of your desk and around every object. Sustainability is like that water, it’s flowing everywhere, into all corners of finance, whether equity markets, debt markets, sukuk, Islamic finance, banking, or insurance.


At the SSE for the first 10 years, we did zero work with derivative exchanges and derivative markets. We couldn’t get our heads around how we were going to even integrate sustainability into those markets, but we had a lot of derivatives exchanges approaching us and asking us to be members of the SSE and to work with them. Finally, we put our thinking caps on and worked with a large international advisory group, and we produced a guidance which we published earlier this year on how derivative exchanges promote sustainable development. It was a learning process for us and the community we work with. So sustainable finance is going to go everywhere and it’s a subcomponent of the broader corporate sustainability movement.


It’s remarkable; quite often we’ll think about stock exchanges as a feature of advanced markets, but you’ll find stock exchanges in some of the smallest markets in the world like the Rwanda Stock Exchange. I think they have seven listed companies, and all the trading is done by hand. They’re a member of the SSE and we do training exercises with them. So you will find exchanges everywhere.


What are the incentives for a stock exchange to join the SSE? What do they gain?


The SSE at its heart is a peer-to-peer learning platform. Particularly with stock exchanges, you’ll see that in our work we develop a lot of guidance documents for exchanges which cover a range of issues within the Sustainable Development Goals (SDGs). We provide guidance to exchanges on how to promote gender equality to in the marketplace, ESG disclosure, and other areas. What we’re doing is collecting practices from around the world and condensing them into a menu of actions that exchanges can choose from. The idea is that exchanges don’t have to re-invent the wheel – they can learn from their peers.


We’re working with exchanges around the world to find real examples of things they’ve implemented in the marketplace. We recognize that markets and exchanges are different from one another, they have different business structures and they’re under different regulatory regimes, so it’s not always the case that you can copy one for one. But we collect enough examples from enough different markets so that you can always find some market that’s similar to yours. For many exchanges, they don’t see sustainability as a competitive issue so they’re happy to share their experiences with their peers around the world. In that sense, what we really offer to exchanges is access to that global learning process.


In any company where you have a sustainability officer, this person will be a relatively lonely person. They can be quite often a one-person office and it is not unique to the stock exchange world; it’s true pretty much across the entire private sector. Some companies will have expansive offices with maybe 5 to 10 people. But usually, it’s not more than 1 or 2 people that are in charge of sustainability issues. Sometimes they wear multiple hats, they’re sustainability officer but they’re also something else. We try to act like a back office for those people, to help them out and give them support. We also help to connect them with their peers across the world, so they’re not alone anymore, they’re talking to people who have the same job, and they can learn from each other.


Other than that, we have a number of meetings, including regular quarterly meetings for members that we’ve been doing for over a decade now, where we cover various topics. The size of those groups can range from 60 to 100 people, and they’re closely involved in the production of the large work. We’ve been told exchanges appreciate our work because of the process of producing the guidance; it’s an inclusive process where all the exchanges get to help draft the guidance themselves.


We developed our model guidance on ESG disclosure for stock exchanges back in 2015 as a template. We put it out there so that exchanges would not suffer from what I call ‘blank paper syndrome’. We gave it to them and said, this is a public gift from the United Nations; copy and paste the whole thing if you want, put your logo on the front, modify and adapt it to your circumstances, or write your own guidance from scratch. We also provide a service for exchanges where we review their guidance documents before they publish them, and a few exchanges have taken advantage of this service.


The other valuable tool that did not exist a few years ago is that on the SSE website we have a comprehensive database of every stock exchange guidance on ESG reporting, so you can see exactly which exchanges have them. If you’re working in an exchange today, and you don’t want to reinvent the wheel, just look at what your peers are doing. And if you think your market has unique circumstances, we’ve got 61 exchanges that have their guidance online. I guarantee there’s an exchange out there that is close to your circumstances. The guidance documents are also available in different languages.


With their pivotal position in financial markets, stock exchanges are ideally positioned to steer capital toward sustainable investments. From your observations, what challenges are stock exchanges facing when it comes to integrating ESG into their practices, and how are they overcoming these challenges?


The sustainable finance space has been growing steadily over the last 20 years, but it’s really taken off in the last five years. Sometimes the challenges are good challenges, like how do you keep up with the pace of change. They’re not the kind of challenges you might have had 10 or 15 years ago where you’re simply trying to explain why we have these products.


We’ve shifted to this new era now where it’s “how do I keep up with the demand”, or “how do I help to monetize the products”. We see in some emerging markets, they’ve created ESG indices that are very popular and have performed very well. For example, the Egyptian exchange is one of the earliest exchanges that created an ESG index back in 2010 to track their main companies and it has consistently outperformed the main market index. Yet there’s not a single fund tracking that index.


There are a lot of indexes in the world that have no money tracking them and that’s a problem. This is a situation where the exchange did its job; it was the one that reached out to service providers to build the index. But the exchange is not a fund. Somebody else in the market has to step up and do their job. That’s a challenge we see - getting more money into this space, particularly in emerging markets.


The sustainable finance world is built on top of the finance world. Any problems you have in the finance world you’re going to also have in the sustainable finance world. Prior to sustainable finance, there was already a challenge channelling money to emerging markets, where people often have misperceptions.

People think investing outside their home country into a foreign market is somehow risky.


Two of the biggest pools of capital on the planet are Europe and North America. Europeans will think it’s risky to invest in America because it’s foreign, and vice versa. It’s a bit strange but it’s kind of a mild xenophobia of finance. Then if you tag on to that emerging market risk, it becomes a real challenge. Part of the problem there is that investors and asset managers are painting with an extremely wide brush. Not all emerging markets are equal when it comes to investment risk, but many asset managers treat them as if they are. Just think about the terminology – emerging markets – and all the different countries that fall into this basket. There’s a huge collection of markets that have different circumstances. But investors will treat them all the same, as high-risk markets. That’s a challenge that pre-dates sustainable finance. The reason why it’s so important to sustainable finance though, when we’re talking about SDGs, we’re talking about investing in emerging markets. I always say, if you’re not investing in Africa, you’re not investing in the SDGs.


I was once talking with the CEO of an exchange in Africa as part of our work on green finance. We thought we could help them move money from point A to point B, and he looked at me and said, “the problem is, we don’t have point B”.


Nowadays people will talk about sustainable finance, they will speak with giant institutional investors, and somehow you can tell that they’re aiming for something substantial, that by the end of the conversation the CEO of a major fund manager is going to pull out a magic wand and say, “you’re right, I’m going to put a trillion dollars in Africa”. But where is it going? Is there a trillion dollars’ worth of investable projects in Africa right now ready to be bought? That’s another issue; it’s a chicken and egg problem. What comes first – the investment finance or the investment product? And the investable product has to be built on top of an investable project. Who builds the project without the money? You get caught up in a trap.


Sustainability puts more pressure on overcoming these challenges. It’s not enough for us to wash our hands and say “well, it’s very difficult” and walk away. We must overcome these challenges.


To what extent are stock exchanges aligning shariah-compliant investing with sustainable, responsible investing?


Islamic finance crossed my radar back in 2017 when Malaysia launched the world’s first green sukuk. We then started to keep an eye on that space. Just recently we hosted a session of the World Investment Forum on green Islamic finance, where we featured speakers from around the world working on this space. It’s another example of how sustainability is entering all corners of finance.


I think there are aspects of the sukuk structures that could be useful for the rest of the finance world to learn from, especially when we’re dealing with the challenges we’re facing and as we start to expand and drive investment to emerging markets. To overcome the financing gaps for climate allocation and the SDGs, we need to sometimes reinvent the financial tools that we use and it’s good to revisit certain tools like sukuks to see if there’s something we can learn. If the instruments we have are not sufficient, then we need new instruments. In that case, everything should be on the table.


The European Commission’s proposed Corporate Sustainability Reporting Directive (CSRD) aims to radically improve the EU’s existing Non-Financial Reporting Directive, requiring even unlisted companies to report sustainability information. What implications could these new reporting rules have for financial markets if approved and adopted by October 2022?


We have to be careful not to create too much of a gap between the requirements of listed and unlisted companies. There will always be more requirements on a listed company, but exactly how much more? How big is the gap between a listed and an unlisted company in terms of regulatory burden? We should be careful not to make that gap too big. Otherwise, it will just undermine the existence of public markets at some point.


When it comes to reporting burden of companies, it’s a legitimate complaint on the part of companies. It’s easy for everybody to say we want more information. I think it will be useful to have a serious exercise of going through all the existing requirements and saying, “do we need all this”. While we have more sustainability information, which is absolutely essential for the world we live in today, to understand the way companies work and the risk and opportunity in the marketplace, we can still be sympathetic to the issue of reporting burden on companies by trying to remove other aspects. For example, there’s always been some debate on whether we need quarterly reporting or not. I’m not taking any position on that; I’m just saying this conversation has been in place for at least 20 years.


I think what the EU has done is great. And there’s a parallel to that, which is the reporting requirements that fall on asset managers along with this new taxonomy that asset managers have to use. This is an interesting space, and the EU is pioneering in that area.


Are there other jurisdictions that are working on creating a level playing field between listed and unlisted companies when it comes to sustainability reporting?


It’s never going to be a level playing field between listed and unlisted companies. It’s about keeping the gap between them reasonable and appropriate. Listed companies will always tend to have more stringent requirements. They’re part of transparent, well-regulated markets and that’s why investors like to invest in those companies.


There are other jurisdictions working on this space. The biggest markets in the world from the US to China are working on the questions around taxonomy and reporting requirements. We have seen the SSE track voluntary sustainability reporting guidance for exchanges.


In 2015, when we issued our model guidance for exchanges, we just gave them a template and encouraged them to introduce guidance. At the time, only 11 exchanges in the world had guidance. Today, 61 exchanges in the world have guidance. The most recent one was the Saudi Stock Exchange, which launched their guidance on ESG in November. We’ve seen an enormous leap from 11 to 61 with voluntary guidance. We’ve also seen this trailing shadow of regulatory disclosure – we’re up to 26 markets worldwide that have mandatory ESG disclosures. Ten years ago, that number was close to zero. In practice, when we reach out to exchanges and policymakers and we often recommend that they go through a period of voluntary guidance before they get to a mandatory regime.


A good example we’ve often cited is Hong Kong. Many years ago, they introduced a voluntary guidance on ESG disclosure, and they told the market this wasn’t going to be voluntary forever, in five years it would be mandatory. Sure enough a few years later they made it mandatory. This gives the issuers the opportunity to learn and practice a bit before it becomes mandatory.


Many years ago I prepared a report on corporate governance disclosure, comparing actual disclosure to what is legally mandated. You can find a lot of legally mandated disclosures that nobody complies with, and enforcement in the marketplace is often weak, even in the most advanced markets. That’s because security market regulators are not police officers; they’re not running around with a microscope looking at annual reports. Somebody else has to call out a company on that. Usually it’s investors; they can sue a company and say it did not disclose the information and then the regulator will step in.


But if nobody blows the whistle and nobody calls them out, you can find a lot of missing things.

We often forget that legal compliance is complex. We should never assume that making sustainability reporting mandatory is always a good thing or that it’s a magic wand that everybody will follow. We should focus on other aspects of teaching people how to do those things independent of whether it’s mandatory or not.


Are there many exchanges that have to comply with mandatory ESG listing requirements?


It depends on the exchange and the regulatory authority of the exchange. If you look at the London Stock Exchange for example, they have zero control over their listing rules. All of that is controlled by the Financial Conduct Authority (FCA) in the UK. Everything they do is about voluntary guidelines. If you look at the Johannesburg Stock Exchange, they have been given a high degree of regulatory authority by the government. It’s different around the world. Some exchanges may not even have the capacity. At the end of the day, results are what matter. You can have a mandatory regime that everybody ignores, and you can have a voluntary regime that everybody complies with.


Earlier this year on International Women’s Day, we published a ranking of all the stock exchanges in the G20 based on the gender balance of the boardrooms of the top 100 issuers. We found that the top three markets for gender balance in boardrooms were Paris, Milan, and London. In Paris and Milan, there’s a legal requirement on the minimum number of women on a boardroom. For example, 44 percent of board members in companies on the Paris Stock Exchange are women but it’s legally required that you have at least 40 percent. Compare that to London, where there’s no legal requirement, and yet they have more than 30 percent women on the boardroom of their stock exchange.


In that same ranking, some exchanges were at the bottom of the list for gender equality in boardrooms, despite having mandatory minimum requirements, but that mandatory minimum is just too low. It will be something like at least one woman on the board, but if your typical board size is 10 to 15 people, that’s less than 10 percent women.


We recently had an all-female CEO roundtable on gender equality as part of the UNCTAD World Investment Forum, with six women who were CEOs of stock exchanges. There are only about 14 women CEOs across stock exchanges in the world, so we were happy to have these women with us. One of the points that was stressed by these CEOs was that in different markets there will need to be different strategies to achieve gender equality.


At the end of the day results matter, and the same is true when it comes to ESG disclosure. We’ve seen Brazil for example introduce a climate index in their market 10 years ago. The first year they introduced it, around 20 percent of the companies were reporting climate emissions, but by the third year, 80 percent of the companies were reporting their emissions. That was a purely voluntary scheme and a little bit of market pressure and incentive because people wanted to show up in the index and they wanted to look good. This is one of the reasons why indexes are powerful tools.


So yes, regulatory requirements are important and they’re coming. Everybody in the world should expect by 2030, if not sooner, most major markets on this planet will be covered by mandatory ESG disclosure rules. That said, there are other things we could be doing to promote uptake of this information.


The UN’s COP26 has had more importance this year given the pandemic and its effect on the world. Are there any insights that you could share with us about your participation in the summit?


We had two sessions in COP26 on finance, one session with sustainability officers from exchanges, and a roundtable with the CEOs of the exchanges that have made net zero commitments and joined the Glasgow Financial Alliance for Net Zero (GFANZ). We went into COP26 with six exchanges who had joined the GFANZ, which has been guided by the UN Special Envoy on Climate Action and Finance, Mark Carney. We were very happy about that.


We expect more members of the SSE to join. For me, one of the big outcomes of COP26 was that net zero movement, and not only in the finance world. It’s critical that we all have the right target in mind and that target is net zero emissions. We’re no longer having the conversation we had 20 years ago about low carbon; we’re now having a conversation about zero carbon. In the last two decades when we were talking about low carbon, we managed to emit the same amounts of emissions that we’ve emitted in the previous 30 years plus, so we need to take drastic action. Net zero is what our goal is, and that’s going to be the fundamental guiding principle and theme over the next 10-15 years.


If you want to get to net zero by 2050, it doesn’t mean business as usual till 2049 and then try to change in 12 months. It means the bulk of action has to take place over the next 10 years. If we’re not showing real progress by 2035, it means there’s going to be tremendous disruption in the marketplaces. There’s going to be winners and losers and opportunities and challenges. Everybody has to prepare for that, investors, and companies. Stock exchanges that we work with are fully aware of that and they want to help their issuers make this transition.

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