Harnessing Europe’s capital markets to enable a green transition
The EU’s commitment to become climate neutral by 2050 requires massive financing. Capital market infrastructure providers will be key in reorienting capital flows towards sustainable investments. But is the existing capital market structure fit for the green transition?
That was the central theme for leading experts from the European Commission, European Parliament and London Stock Exchange Group who joined a lively online debate hosted by Optiver to discuss how to harness Europe’s capital markets to enable the green transition.
Tatyana Panova, Head of the Capital Markets Union Unit at the European Commission, MEP Caroline Nagtegaal-Van Doorn, David Harris, Head of Sustainable Business at the London Stock Exchange Group, and Optiver CEO Jan Boomaars spoke at the 3 December event. It was moderated by Victor van Hoorn, Executive Director of Eurosif – the European Sustainable Investment Forum.
“We need to listen to the voice of our citizens, and citizens want green,” said Tatyana Panova. “Retail investors are gradually waking up to these products,” she said. “We need to support direct retail participation, so emphasis on disclosure will be very important.”
The LSE’s David Harris also emphasized disclosure. “We need to unleash the power of capital markets to address sustainability issues. A key need is good, relevant data and information investors can use to orient capital. There are significant gaps in that today,” he said. “The market is shifting but could shift faster, better and more efficiently if we have better information flows through the entire system.”
Optiver’s Boomaars called for simplicity and transparency to build investor appetite.
“Let’s keep things simple, try to standardize as much as possible at the beginning, and make ESG products as transparent as we can,” said Boomaars. That will create investor confidence, and all else will follow so that in the long term, ESG products become the standard for the capital markets.”
Optiver advocates these initiatives to improve liquidity and make ESG products meaningful:
- Create ESG products that clearly meet investor demand and are successfully marketed so investors are aware of their existence.
- Make it attractive for end-investors to trade by minimizing transaction costs.
- Incentivize deep liquid order books through attractive market-making schemes, so that ESG products are priced competitively.
- Create a standardized framework for companies to report their non-financial ESG information, so investors can compare companies on sustainability.
- Create a common method for sustainable ratings agencies (SRAs) to assess companies, replacing the differing proprietary methods used by SRAs now.
“We urge issuers and exchanges to create more harmonization between ESG products and make differences between ESG products clear to the end-investor, so they can make informed decisions about how to incorporate ESG in their investments.” said Jan Boomaars.
“What is most important right now is for everyone to take a step in the right direction. To determine the right direction and the path to sustainable finance, we hope that discussions like these – about how to approach it – can help everyone take a step in the right direction.”
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In complex systems like financial exchanges it is inevitable that issues and even outages occur from time to time. However, why do outages on the primary market cause trading to stop on other exchanges? Why aren’t volumes moving to MTFs? What are the downstream effects of these systemic fragilities and what can be done to improve them?
We hope to spark a discussion on the steps needed to build resilience in EU equity markets which would undoubtably benefit all investors and European capital market participants.