Unblocking the carbon credits bottleneck

Claire Dorrian, head of sustainable finance, capital markets at London Stock Exchange Group (LSEG), talks to Shanny Basar about its plans to launch listings of carbon funds and the increasing prominence of sustainability.

On 11 May this year the London Stock Exchange published a public consultation on the market rules for its planned listings of carbon funds which it announced at the COP26 conference in Glasgow in November 2021. Claire Dorrian, head of sustainable finance, capital markets at London Stock Exchange Group (LSEG), explained that voluntary carbon markets are a natural extension of its sustainable finance offering.

Julia Hoggett, CEO of London Stock Exchange, said in the consultation that capital markets exist to bring together those who have capital with those who need capital in service of an objective. She added, “There can be no more pressing objective in our lifetimes than the just transition to net zero.”

Dorrian agreed that an exchange can play an important role in supporting companies achieve their net zero strategies and in the wider transition to a low carbon economy. “We are looking to solve the problem around unlocking the bottleneck in the supply of carbon credits, rather than focusing on how you trade those products,” she said.

The group is providing market infrastructure to support the listing of carbon funds on the LSE so capital will flow directly into worldwide high-quality climate mitigation projects. The market consultation will gather feedback from corporates, investors and others on admission requirements, ongoing obligations, as well as carbon credit standards for the listing of carbon funds.

“Companies must be able to look at  decarbonising  themselves which we totally advocate as an exchange, but there are going to be residual emissions that can’t be reduced in isolation and this is where offsetting can come into play,” Dorrian added.

Offsetting can be achieved through using the voluntary carbon market. Carbon markets can be compliance schemes regulated by mandatory national, regional, or international frameworks or voluntary programs. More than 60 carbon markets and taxes have been implemented around the world covering one fifth, 22%, of global greenhouse gas emissions according to Credit Suisse, with mandatory compliance carbon markets accounting for approximately three quarters of the total emissions covered.

The bank said in a report that voluntary markets have grown substantially in the past few years, but still pale in size to the mandatory market due to lack of standardisation and low credibility around the quality of credits.

Claire Dorrian, head of sustainable finance, capital markets at London Stock Exchange Group (LSEG).

Hoggett agreed that the voluntary carbon market remains illiquid, fragmented and opaque. She believes that marrying voluntary carbon credit standards to the transparency, regulatory scrutiny and ease of access of public markets will allow this new market to scale. Corporates could become investors in the new carbon funds to help them meet their net zero targets by receiving a dividend in specie in the form of carbon credits.

Dorrian said the listed carbon funds will help professionalise the market and sit alongside the UK’s existing regulatory landscape. The London Stock Exchange Voluntary Carbon Market designation is focused on the construct of the fund, the obligation to make the investment into certain projects within a certain timescale and then distribute the dividend in the form of carbon credits. The exchange will have some additional requirements around ongoing obligations and disclosures.

“We don’t want to set ourselves up as a new standards body as there are existing standards and others in development such as the Voluntary Carbon Markets Integrity Initiative,” Dorrian added. “We’re doing this in a very open framework and looking at the challenges and the fragmentation of this market.”

Launching the London Stock Exchange Voluntary Carbon Market is a key priority for Dorrian this year, as well as announcing the next annual cohort of the Green Economy Mark in July. The Green Economy Mark recognises London-listed companies and funds that derive more than half of their revenues from products and services that are contributing to environmental objectives such as climate change mitigation and adaptation, waste and pollution reduction, and the circular economy.

Dorrian described sustainability as a key enabler of the growth of the exchange’s business in helping to ensure that we support listed companies and broader customers.

“It has come to the front and centre of people’s minds and is increasingly important to a company’s success,” she added. “They need to have a credible story and strategy and to clearly articulate that as there is a big difference between being a green business versus good at ESG.”

Sustainable finance

Dorrian described her role as very broad as it looks at how the exchange supports its customers around growing the green economy; environmental, social and governance (ESG) data and disclosure; and also climate and transition.

Companies need data to understand how they are being rated from an ESG perspective, and the view around their reporting and engagement. The exchange aims to help to improve those numbers through tools and educational initiatives.

Last year LSEG worked with the UN Sustainable Stock Exchange initiative to produce climate reporting guidance in a project that was initially spearheaded by Mark Carney, UN Special Envoy for Climate Action and Finance, and David Schwimmer, LSEG’s CEO.

In October 2021 the exchange launched its own guidance for London-listed companies and provided training for those issuers. In addition,  data is critical to make sure that the exchange is not left exposed to concerns around greenwashing.

Dorrian traces her interest in sustainable finance back to studying international relations and environmental law at Keele University. When she started her career in finance in capital markets the focus was on ‘corporate social responsibility’ and she also supported listings in the cleantech sector.

“There are many colleagues at LSEG who have been working in sustainable finance for a number of years and it’s good to see the prominence it is now getting,” she added. “The organisation has been forward thinking when you look back to the creation of the FTSE4Good index series in 2001.”

The exchange looks to ensure it has a strong global offering in green funds, fixed income, equity and ESG exchange-traded funds. Dorrian said: “That puts us in a very strong light compared to some other exchanges that are more focused on just fixed income, for example.”

LSE has been a big growth in renewable energy funds. There are currently 117 companies that have the Green Economy Mark and over 30 of those are funds.

There has also been significant growth in the sustainable bond market since 2019 across sustainability or green bonds, transition and social bonds. Last year LSE’s sustainable bond market raised over £50bn, three times more than in 2020, according to Dorrian.

Diversity

Dorrian started her career in fund management and pretty quickly became hooked on the fast-paced environment which she found both challenging and exciting. She said: “I continued that in the UK and Australia and feel that it is a dynamic industry with lots of opportunities that has certainly taken my career in different angles.”

As a result, her advice to other women is to be open to opportunities. It is important not to fall into the trap of avoiding situations that take you out of your comfort zone as embracing some of that discomfort has led to opportunities.

“I have spotted opportunities where I thought I could take on a project or additional responsibilities,” she said. “Everybody is so busy that I don’t think you’ll ever be met with a ‘no.’”

She believes that being successful requires a really strong work ethic as well as trying to maintain that inquisitive mind which she sees in her children, having a drive to continually learn and good juggling skills.

“You also cannot underestimate the success that comes from having a good team in the workplace and also the family,” said Dorrian. “I probably wouldn’t be where I am today if I didn’t have some really strong colleagues and champions that I have worked with and, of course, the support from my husband and children.”

Dorrian described LSEG as a really strong supporter of making the workplace a diverse place to pursue a career and said it is a signatory to a number of initiatives that underpin that commitment. “We are also clear on leading from a listed company perspective across all forms of diversity,” she added.

Catherine Johnson, group general counsel, is also chair of the LSEG Diversity and Inclusion Committee and sits on the executive board committee.

LSEG has been publishing its gender pay gap, which Dorrian said has been reducing, and has committed to begin publishing ethnicity pay gap data by the end of the year. Over the last 18 months LSEG has been working to make that data available in its day-to-day systems.

The global median salary pay gap was 17% according to the LSEG Gender Pay Gap Report 2021. The group has committed to have 40% women in senior leadership by the end of 2022 and 25% people from ethnic minorities by the end of 2025.

Dorrian is optimistic: “I feel the industry is a very different place than when I started my career.”

©Markets Media Europe 2022
TOP OF PAGE


Dancing towards the convergence of traditional and digital asset finance

Sophia Shluger, Managing Director for Europe at Amber Group, has plotted an unusual path...

Financial firm’s tolerance of poor cloud connectivity is costing up to 50% of revenue

The sluggishness to move to more reliable cloud options is costing financial institutions between...

The European Markets Choice Awards – Finalists Announced!

Markets Media Europe is delighted to present a preliminary list of finalists for the...

Dancing towards the convergence of traditional and digital asset finance

Sophia Shluger, Managing Director for Europe at Amber Group, has plotted an unusual path...

Financial firm’s tolerance of poor cloud connectivity is costing up to 50% of revenue

The sluggishness to move to more reliable cloud options is costing financial institutions between...

The European Markets Choice Awards – Finalists Announced!

Markets Media Europe is delighted to present a preliminary list of finalists for the...