Publicly traded companies increasingly realize that to attract investors, they need to focus more on sustainability. But a new company, Green Exchange, aims to get businesses to go beyond existing environmental, social and governance (ESG) factors via its launch of the Green Impact Exchange.
A Dow Jones survey finds that financial leaders expect ESG investments to more than double over the next three years. But there are some factors potentially holding back that growth.
Over half of respondents think “traditional ways of valuing companies are inadequate for assessing sustainable investments,” and 52% don’t think ESG data quality is sufficient yet for making investment decisions, Dow Jones reports.
So, rather than sticking with current ESG investing approaches, there could be room for a new way of assessing and accessing sustainable investments.
“The current ESG ecosystem is well intentioned but has yet to deliver on its promises. Currently there is no easy, reliable method for investors to ensure the companies they are supporting are actually delivering on their promises – in fact, it encourages ‘greenwashing’ as much as actual progress,” Green Exchange says.
Instead, the company looks to launch the Green Impact Exchange (GIX), which would require businesses to follow more forward-looking, strategic environmental practices in order to list on the exchange.
Green Exchange recently started discussions with the U.S. Securities and Exchange Commission (SEC), with the aim of getting approval by Spring/Summer of 2023 and then launching in Summer/Fall 2023.
To start, companies will need to dual list on the GIX, meaning a stock that currently trades on an exchange like NASDAQ wouldn’t have to de-list there but instead could trade on both. Later on, however, companies might have the option to use the GIX for their primary listing.
And by structuring the business as a stock exchange, rather than, say, a database, Green Exchange looks to create accountability and transparency for sustainable investing.
“There is no need for investors to subscribe/pay for a specialized database or consult a proprietary list, because exchange listings are publicly accessible,” says Daniel Labovitz, CEO, Green Exchange.
Meanwhile, the exchange will be able to enforce that public companies follow sustainable practices. If a company does not follow the GIX’s requirements, they risk getting delisted.
“This means not only do they lose access to our capital markets features but also must deal with the perception fallout from such a decision,” says Labovitz. “Delisting is not taken or decided upon lightly and GIX will be accountable to the SEC whenever an event should occur.”
More Than Metrics
Rather than focusing solely on quantitative ESG factors, like annual carbon emissions (for which the SEC is exploring requirements for all listed companies), the Green Impact Exchange will take a more qualitative approach.
“The SEC’s proposal is strong but focuses much more on disclosure versus incorporating green thinking into the company’s DNA. By contrast the GIX rules point mainly toward governance, with the idea that green thinking should be a component of all decisions,” says Labovitz.
Specifically, to list on the GIX, explains Green Exchange, companies will need to demonstrate that they’ve adopted environmentally responsible policies and procedures across six core categories:
- Leadership: Company leadership, including boards, will have to publicly show sustainability commitment.
- Stakeholders: Businesses will need to identify and engage with key stakeholders on green issues.
- Goals: Companies will need to have short-, medium- and long-term green goals.
- Strategy: Corporate strategy will need to align with sustainability commitments and goals.
- Compliance: Businesses will need to report and analyze verifiable green metrics.
- Alignment: Companies will have to ensure sustainability aligns with its core operations, rather than being something that’s considered an add-on.
In practicality, that means taking action like a board adopting a statement of green values, i.e., what the company believes about being green and the transition to green business practices, explains Labovitz.
Another example would be that “the company must either appoint a chief green officer or charge existing officers with specific green responsibilities,” he says.
Plus, listed companies will have to use a recognized reporting framework, such as from the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), or the Task Force on Climate-Related Financial Disclosures (TCFD).
Benefits for Businesses
The creation of this new impact-focused exchange isn’t just the story of a new business launching with sustainability in mind. It also ties into how businesses can potentially benefit from focusing more on environmental impact.
For one, issuers that demonstrate a commitment to sustainability, such as by listing on this green stock exchange, can gain long-term investor loyalty, considering investors are motivated by mission, not just making a quick buck.
That “allows the company more flexibility to invest in longer-term green transitions, where the return on investment may be deferred in the short term but greater in the long run,” says Labovitz.
Plus, businesses can access the growing pool of capital earmarked for sustainable companies, he adds, along with “improved reputation with both investors, consumers” and other stakeholders.
Disclosure: Our parent company, JournoContent LLC, has clients involved in sustainability-related areas, among others. The owner of Carbon Neutral Copy, Jacob (Jake) Safane, has investments in sustainability-related companies, among others.
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