Are stock exchanges the Sustainable Development Goals' best allies?

Since the 2010s, awareness of the importance of sustainability has grown significantly, leading to the creation of the Sustainable Development Goals (SDGs) by the United Nations in 2015. These 17 SDGs set out to tackle global challenges such as poverty, hunger, health, education, gender equality, water, energy, work, economic growth, industry, inequality, sustainable cities, responsible consumption, climate, environment, justice and peace, and global partnerships. These targets must be achieved by 2030, around six years from now.

Focusing mainly on companies, numerous studies (Heras-Saizarbitoria et al., 2022 ; van der Waal et al., 2021 ) have been conducted in recent years to analyze their commitment to the SDGs. However, it is surprising that very few of these studies have targeted the financial sector, and even fewer have considered the specific role of stock exchanges, which have assumed growing responsibility for developing a sustainable financial system.

Stock exchanges play a key role in the redistribution of wealth by facilitating the trading of financial instruments such as debt, equities, and currencies between different intermediaries. They are also driving innovation in financial products, notably through the development of green bonds and social impact bonds. It is now acknowledged that these new financial products are facilitating the transition towards a sustainable economy. Nevertheless, conducting a more detailed analysis of their contribution to sustainability and achieving the SDGs would be beneficial, looking beyond their traditional role as the main suppliers of financial products.

Promotion of sustainable practices

Over the last fifteen years, the stock market sector has stepped up its efforts to promote sustainable practices. In 2010, for example, the Sustainable Stock Exchanges Initiative (SSE Initiative) was launched in partnership with the United Nations to establish a global platform. This initiative examines how stock exchanges, in collaboration with multiple stakeholders, can improve performance on ESG (Environmental, Social, and Governance) issues and encourage sustainable investment, including financing the SDGs. The SSE Initiative's actions mainly focus on six of the 17 SDGs: gender equality (SDG 5), decent work and economic growth (SDG 8), reduced inequalities (SDG 10), responsible consumption and production (SDG 12), climate action (SDG 13), and partnerships for the goals (SDG 17).

At the same time, the World Federation of Exchanges (WFE) launched a sustainability working group in 2014, encouraging stock exchanges to play a more active role. In a report published in 2018 (WFE Sustainability Principles-https://www.world-exchanges.org/our-work/articles/wfe-sustainability-principles), the Federation identified five principles to facilitate the achievement of the SDGs: educating investors, issuers, and market participants; promoting the enhanced availability of ESG information; actively engaging stakeholders to advance the sustainable finance agenda; supporting markets and products that promote sustainable finance; integrating sustainability into governance, strategy and internal organizational structures.

Collective and individual actions

To affirm member exchanges’ commitment to certain SDGs and rally them behind these causes, the WFE and SSE Initiatives have organized a series of annual events, including “Ring the Bell for Gender Equality”, launched in 2015 and aiming to raise awareness of the private sector's role and opportunities in promoting gender equality. In addition, the “Ring the Bell for Financial Literacy” event was introduced in 2019 to improve financial education and culture, thereby improving investor protection.

These initiatives have acted as catalysts, encouraging stock exchanges to step up their efforts to achieve the SDGs and, in so doing, increase their commitment to sustainability.

To identify the practices employed by stock exchanges worldwide, we analyzed various data sources, including stock exchange websites, annual reports, sustainability and CSR reports, and reports published by the WFE and SSE Initiatives. Our sample comprised 85 stock market entities with highly heterogeneous characteristics (size, age, growth, etc.). Seventy-nine of these were partners of SSE Initiatives, and 54 were members of the WFE. The conclusions of the study, published in the International Journal of Sustainable Development in 2023, show that the stock exchanges' efforts cover all 17 SDGs, going beyond the six SDGs initially identified by SSE Initiatives.

A wide range of actions in support of the 17 SDGs

For example, to reduce poverty (SDG1), the Brazilian Stock Exchange has financed a cultural center in one of São Paulo's poorest neighborhoods. In contrast, the Nigerian Stock Exchange has financed a mobile cancer center, improving health and well-being (SDG3). In the education field (SDG4), efforts range from financing rural schools (Casablanca Stock Exchange) to enhancing the level of financial education (Malaysian Stock Exchange, German Stock Exchange, Botswana Stock Exchange) and sustainable finance-oriented education (Luxembourg Stock Exchange, Egypt Stock Exchange). These efforts are helping to create a culture of sustainability in the financial sector, which can positively affect the whole economy.

Stock Exchanges also strive to reduce gender inequality by supporting associations and programs promoting equality (Lima Stock Exchange) and encouraging listed companies to commit to this type of action (Lima Stock Exchange). Other stock exchanges have implemented internal initiatives to promote women's careers (German Stock Exchange). For SDG 8, the Australian Stock Exchange has developed a multi-level career program to support employees' professional development.

To protect the environment (SDGs 13, 14, and 15), financial products with an environmental impact have been developed (Euronext, German Stock Exchange), along with awareness-raising initiatives (Malaysian Stock Exchange, Luxembourg Stock Exchange). Examples include creating green financial products such as green bonds, which finance the energy transition and contribute to the fight against climate change.

Limited but significant efforts

Although stock exchanges can potentially address all 17 SDGs, our findings show that they seldom conduct initiatives to address societal needs such as poverty reduction (SDG 1), hunger (SDG 2), and access to clean water and sanitation (SDG 6).

Our findings confirm that stock exchanges are a particular type of financial institution capable of taking action internally and externally. For SDG 16, for example, stock exchanges can encourage listed companies to improve their governance externally and implement various internal measures to improve their governance practices.

Our findings highlight stock exchanges' efforts to contribute to a more sustainable world but show that these initiatives are not purely philanthropic. Many of them enable stock exchanges to create value. Sustainable products such as green and socially sustainable bonds attract new investors and boost their performance.

Towards a sustainable future: the role of stock markets

Our study also reveals significant disparities in stock exchange practices, which can be explained by various factors such as their size, governance policy and respective national policies. These disparities can also be explained by the voluntary nature of sustainable commitments and the absence of a regulatory framework to support the transition. Our findings, therefore, suggest that collaboration between stock exchanges and regulators plays an essential role in strengthening sustainability.

The findings of this study clearly show that a growing number of stock exchanges have taken on board the issue of the SDGs and are beginning to introduce practices designed to facilitate their achievement. In this way, stock exchanges increasingly position themselves to play a key role in the global transition towards a more sustainable economy. This tendency is not limited to isolated initiatives but corresponds to a trend marked by concerted and systematic efforts.

By continuing to work with regulators, fostering transparency, promoting responsible practices both internally and externally, and offering financial products with an environmental and societal impact, stock exchanges can significantly contribute to building a more sustainable future. Therefore, they must keep evolving and adapting to the challenges and opportunities of sustainability.