ESG investing saw another year of extraordinary growth in 2021, fuelled by a range of factors. The world witnessed increasingly common extreme weather events, including Madrid’s heaviest snowfallin 50 years and Cyclone Ana displacing more than 10,000 people in Fiji.
The finance sector is a vital contributor to the global sustainability agenda, which is more important than ever, given the current pressing challenges. It empowers sustainable finance by incorporating environmental, social and governance (ESG) factors into investment decision-making.
As a result, investors are motivated to become a force for positive change by buying stock from socially responsible issuers. Not only is it the right thing to do for the planet, but it helps to futureproof organisations in a world where attitudes and systems are under constant scrutiny from customers, investors and regulators.
Euronext continues to prioritise projects relating to environmental, social and corporate governance (ESG) issues. In 2021, it facilitated the issuance of:
- €298 billion worth of ESG bonds, a 44% increase on the €206 billion listed throughout 2020.
- more than 400 new ESG bonds, compared to the more than 200 listed in 2020.
Euronext also launched a brand-new sustainability strategy that will help achieve its ESG goals as well as empower sustainable practices across its markets, called “Fit for 1.5°”.
This article reviews Euronext’s approach to sustainability and discusses several ESG best practices shared by its team of experts.
Fit for 1.5°: Euronext’s ESG commitment
Fit for 1.5° is Euronext’s commitment to developing services and products that help its business, partners, clients and the European economy in general to curb the increase in global temperatures from pre-industrial times. The company’s goal is to help ensure this increase remains below the 1.5°C target, as set out in the Paris Agreement.
An integral part of Euronext’s 2024 ESG strategy, the “Fit For 1.5°” climate commitment involves the exchange setting science-based quantitative climate targets that will inform in-house climate action efforts. This includes relocating Euronext’s Core Data Centre to a new green facility, powered entirely by renewable energy. This transformative move sets the standard for the industry and brings Euronext’s Core Data Centre, which handles 25% of European trading volumes, back to the European Union.
In addition, Euronext will leverage its ESG performance to help issuers to take action on their environmental impact, promoting sustainability. This will be achieved by further developing services and products that help investors and issuers meet the goals outlined in their ESG strategies.
Sustainability strategy: Why Euronext started the Fit for 1.5° commitment
Euronext is a part of an ecosystem and, as such, it wants to join the investors who are already taking action to address the issue of climate change. As both a listed company and a market infrastructure provider, the company intends to use its influence to accelerate the transition that is already underway.
Euronext is in a unique position to create an impact in this chosen aspect of the ESG arena and to drive forward the European financial community’s response to what it calls the “highest ambition under the Paris Agreement” – aiming to limit the increase in global temperature to just 1.5°C.
The Paris Agreement, as well as the outcomes of the COP26 conference in Glasgow, show the urgency with which action must be taken, illustrating why Fit for 1.5° is such an important initiative.
“Many of our issuers are already leaders, and many investors are leaders too, in the space of climate change,” explains the spokesperson for the Euronext Group ESG team. “What we are trying to do is scale up these first initiatives and first attempts to measure the impact of finance in a way that can be useful across all our markets, to our investors and within the regulatory requirements.”
Setting ESG goals
Euronext is an official signatory of the Task Force on Climate-Related Financial Disclosures (TCFD) and has been reporting to the TCFD since 2020. It has also taken the lead in promoting this initiative that aims to improve and increase reporting of climate-related financial information.
In addition, Euronext aligns its ESG practices with the UN Sustainable Development Goals (SDG). This includes a particular focus on the following SDGs:
| Goal | Description |
| 4 | Quality Education |
| 5 | Gender Equality |
| 9 | Industry, Innovation and Infrastructure |
| 12 | Responsible Consumption and Production |
| 13 | Climate Action |
| 14 | Life Below Water |
| 16 | Peace, Justice, and Strong Institutions |
| 17 | Partnerships for the Goals |
Euronext has also backed Business Ambition For 1.5°C, in combination with the UN Race To Zeroinitiative, where signatories have pledged to commit to targets aimed at limiting the temperature increase to 1.5°C and for a net-zero carbon future.
How Euronext takes action to reach its ESG goals
In order to meet Euronext’s ambitious targets, both internal and external, the company has set the following actions in place:
| Goal | Actions |
| Developing new products and services | Including ESG exchange-traded funds (ETFs) to diversify the ESG offering.Establishing a community of green bond issuers, based on the green bonds listed on all Euronext markets. All listings are consolidated into one highly visible platform.Providing ESG Advisory through Euronext Corporate Services. The platform helps issuers understand the needs of investors in terms of sustainability. It supports them in building a bespoke ESG strategy based on extensive data collection and analytics. |
| Introducing new indices | Increasing the number of ESG indices to allow investors to discover ESG-focused issuers more easily.Introducing sustainability-based versions of Euronext’s main blue-chip indices. |
| Supporting issuers | Revising current guidelines on ESG reporting to adjust them for the Fit for 1.5° climate targetsAdvising on guidelines designed to help listed companies structure their approach to ESG, using the framework of the UN’s Sustainable Stock Exchanges Initiative (SSE).Hosting Italian Sustainability Week in June 2021. This consisted of a whole week dedicated to supporting and understanding sustainable finance.Publishing the ESG Equity Barometer in H2 2021 to help make responsible investment more concrete for European issuers. The Euronext team reported on major investment trends, unpacking ESG strategies to help issuers understand the innovative sustainable funds on the market. |
| Fuelling the blue economy | Becoming the first exchange to sign the nine UNGC Sustainable Ocean Principles, taking a lead in advancing the role of the markets in the blue economy, which the World Bank describes as “the sustainable use of ocean resources for economic growth, improved livelihoods, and jobs while preserving the health of ocean ecosystem”.Contributing to the formulation of the principles behind the UN’s blue bonds.Creating Euronext’s own blue index – Euronext Water and Ocean Europe 40 EW – in addition to ETFs related to water, including the Lyxor World Water UCITS ETF.Launching the Euronext Blue Challenge, encouraging young entrepreneurs across Europe to learn key business skills at the same time as understanding how to utilise ocean resources sustainably. |
| Reducing the carbon footprint | Moving the Core Data Centre to a site that uses 100% renewable energy, much of which is self-generated.Reducing greenhouse gas emissions by 7% in 2020, signalling a total reduction of 30% in carbon intensity between 2018 and 2020. |
| Promoting industry standards | Working closely with the Federation of European Securities Exchanges(FESE) to develop Europe-wide ESG guidelines that all exchanges on the continent can share.Supporting the creation of a voluntary, taxonomy-aligned, EU green bond standard that will scale up the issuance of green bonds and make them more ambitious.Endorsing the Corporate Sustainability Reporting Directive (CSRD) and its goal of improving and harmonising the reporting of ESG metrics across the union. |
| Thriving in ethnic diversity & promoting commitment to sustainability | Promoting an inclusive culture, which is embedded in Euronext’s federal structure.Creating a diverse organisation, composed of people of 55 nationalities, based in 18 different countries.Empowering people through training, volunteering and charity. |
ESG Best Practices: 4 steps to improve your ESG impact and performance as an issuer
The Euronext Group’s ESG team of experts shared several ESG best practices.
1. Think long-term
The battle against climate change will not be easily won, and it will not be over quickly. Climate is a long-term project and your goals should reflect that you are committed to sustainability going forwards. This shows your credibility in the sector, as does aligning your ESG strategy with an established methodology.
Investors need to be able to easily understand which issuers are making real progress and which might be greenwashing. That’s why you should be able to show your metrics within a framework that is trusted and transparent.
2. No ‘perfect’ methodology
Different ESG ratings agencies have different methodologies for generating their scores. Each bases its ratings on different indicators and criteria, and there is no such thing as a ‘one size fits all’ approach.
You must pick the criteria that are important for you in terms of creating your goals and setting non-financial KPIs. The targets you choose should fit your company and its mission. In addition, you should be able to communicate why you chose that methodology, how it helps your organisation make a real ESG impact and how that benefits investors and other stakeholders.
3. Integrate sustainability into your business
Producing only stand-alone sustainability initiatives does not create the culture shift that is necessary to make real, impactful, long-term change. When it comes to embracing ESG, sustainability must run in the veins of the company. You could make some big, headline-grabbing moves, but if you don’t address all the elements of the business where you can improve your environmental performance, it is superficial.
Examine your business closely and see where you can make the relevant adjustments. For example, it might mean replacing your paper-based meeting process with an online meeting portal. Not only does this cut your carbon footprint, but it also brings other business benefits, including increased ease of collaboration, improved record-keeping and more.
4. Focus on continuous improvement
Linked to the previous point, you are never finished with the job of instilling sustainability in your business. The bar continues to rise as new risk factors emerge, so make sure your sustainability strategy takes this into account.
Conclusion
The planet’s climate is in crisis and it needs help from all of us if we are to meet the targets of the Paris Agreement. Therefore, Euronext is setting its own goals while also creating platforms for its partners, investors and issuers that will help them with their efforts towards sustainability.
Fit for 1.5° will allow Euronext to focus its strategies on this ambitious goal, with the confidence that it will gather momentum across the European financial sector. Companies must seek new ways of achieving growth with an impact that facilitates real positive change in the battle against climate change. With this bold commitment, Euronext aims to be the preferred partner of issuers across the world who are serious about sustainability.
