The journey to net zero is determined by the actions of major corporations. To get there, they need to pledge decarbonization goals, create a comprehensive time-scheduled plan, allocate the resources, and stick to its implementation.
Nasdaq as a global technology company serving financial markets, is not also walking the net zero journey but also helping clients with their climate change commitments. We interviewed Fredrik Ekström, President of Nasdaq Stockholm who talked to us about Nasdaq’s focus, ESG targets, and financial instruments available that help solve the climate change issue.
What is your background, your role, and responsibilities at Nasdaq?
I have a dual role, I am President of Nasdaq Stockholm, and I lead our efforts around carbon markets. I am also Chairman of the Board of carbon crediting platform Puro.earth in which Nasdaq acquired a majority stake in June 2021.
How does Nasdaq aim to take part in the global climate action of speeding up decarbonization and the net zero economy?
We want to support our customers by helping them achieve their ESG targets and commitments. We offer different solutions to support both corporates and investors. One is the carbon removal platform Puro.earth which helps corporates to manage their carbon footprint.
As an exchange, we are uniquely positioned between corporates and investors. Nasdaq is a highly scaled, global technology provider that serves the world’s financial system. I think these elements together with the competence and capacity of Puro.earth are a very strong combination of how we together can help scale up the carbon removal market.
The carbon removal space is growing, and we need to allocate capital to carbon removal projects. To support financing we aim to connect the carbon credit suppliers with those corporates who want to invest in the projects as part of their emission strategy.
Would you please tell us more about your acquisition of Puro.earth? Why did Nasdaq decide to get involved in the voluntary carbon market space?
We saw a very strong opportunity in the growth of the carbon market as a means to fight climate change. To stop global warming, it is not enough to limit emissions, but measures are also needed to remove carbon dioxide from the air.
We believe carbon removal can play an important role for companies to manage residual emissions. When we came across Puro.earth, we were intrigued by the way they had pioneered and approached the market, how they supported the suppliers and projects around scienced-based engineered carbon removals.
We can support them in terms of funding, creating credibility and trust through verified methods and a transparent registry. We can also help with technology, with a more efficient infrastructure that goes across multiple markets. There were many things we saw that we at Nasdaq could bring to this market in collaboration with other players to help it scale up.
Is Puro.earth your only exposure to the voluntary carbon market?
Puro.Earth is a carbon crediting platform that is focusing on engineered carbon removal and in addition, we have also developed technology that supports the carbon market. Nasdaq has developed a matching engine and registry to support the infrastructure of carbon markets.
What are these matching engines, would you describe them?
A matching engine supports the matching of supply and demand, how buyers and sellers find each other. They also support the price formation to create a transparent and visible price for different carbon credits with different characteristics.
A carbon matching engine might be slightly different compared to a traditional financial market as carbon credits today are not as standardized.
What is Nasdaq’s Net Zero goal?
We have set targets through SBTi and we are delivering on those commitments. We are on the same journey as many other companies.
How do you see the voluntary carbon market developing from now on?
I think the voluntary carbon market will continue to grow, but it is still a nascent market. It will continue to grow because we need to have the capacity to both reduce and remove carbon from the atmosphere if we are to reach net zero, and the Paris Agreement targets.
We need global guidelines, frameworks that would make both buyers and sellers trust the market. We need to enhance transparency around transaction prices, type of credits, and criteria around the credits.
It is the usual pillars of a well-functioning market; integrity, transparency, liquidity and technology. When you have these, the market can grow and scale up.
What do you think of the challenges? A lot has been said and written lately about the integrity of carbon offsets. What do you think are the greatest challenges faced by the voluntary carbon market?
There is a large focus on integrity and credibility. It is important that we have buyers and sellers wanting and willing to engage in the market. I am a strong supporter of initiatives such as ICROA, ICVCM – the Core Carbon Credits Principle and IOSCO.
How Puro.earth is actually helping solve those challenges in reference to the carbon removal certificates? How are they verified and monitored?
Puro.earth has a very rigorous process on how to verify and onboard carbon credits to the platform. Puro.earth also works with an external advisory board that supports in the development of new methodologies.
When a supplier wants to issue carbon credit under certain methodologies, it has to demonstrate that it meets the requirements of that methodology. The actual output and facility are then audited by an independent third party. When that audit is done, and if approved, the supplier can issue credit on the Puro platform.
Last year Nasdaq launched the world’s first index family of three indexes initially that track the price of carbon removal. Would you please explain what they are, what’s their purpose and how do they help the carbon market?
They are reference price indexes based on actual transactions. The purpose of the reference price index is to create transparency around the prices of the different methodologies.
Suppliers can use this signal to support the business case for new ventures and investors in these projects can use it to make better-informed investing decisions. Corporates who wish to go net zero can use this price signal to inform project financing decisions.
They’re not tradable instruments, I suppose?
In the future we could have tradable indexes, but not yet since the number of transactions is a bit too low so far.
What are the available tradable instruments, apart from buying stocks and investing directly into green companies, for investors to get involved in to support the net zero transition?
There are multiple options. Number one priority is how to raise capital for the green transition. We have the Sustainable Bond Market in Europe that has been very important for the industry in terms of raising capital that is earmarked for the sustainable transition.
There are also different alternatives in the carbon markets. We have the carbon offsets and removals that are nature-based or engineered, and also the compliance carbon market – the ETS here in Europe, and there are similar schemes in the US and Asia.
All of these instruments are there to support the transition towards net zero and create a price for carbon. They are also a way to manage climate risk.
What about the ESG-focused indexes? Do they really stimulate the market or they are just here to provide an opportunity to speculate from the price shifts?
It is probably a mix, speculative capital is not all that bad because it can create liquidity in the systems. It helps bring down the spread between buying and selling.
It is very important that we do have fundamental allocation of capital into the specific projects and facilities that actually are delivering renewable energy and removing carbon from the atmosphere. I think that a mix of speculative and fundamental capital makes the wheel going.
Do we have any of those tradable instruments at Nasdaq, focused on the green economy?
On Nasdaq European markets we have an ESG version of our Nordic benchmark index futures as an example. In the future, I expect to see more tradable instruments which are going to be developed in close cooperation with the customers.
Would you say there is a demand for these instruments?
There is a demand. Many investors have their own specific demand for the type of green instruments that they want to trade in. To build these specific requirements for ESG instruments, we have to work with the customers and that’s how I think the market will function in the future.
What do you think about the carbon credits futures?
They can play a role in helping build the ecosystem. The futures market allows for more speculation as well as risk mitigation and exposure towards climate and carbon. It helps create a price around carbon and allows for the engagement of financial intermediaries into the market. We are going to need both of them – a fundamental wholesale market and a futures market.
Nasdaq is engaging with and educating its clients on climate risks, as well as providing marketplace solutions to help them achieve their own ESG objectives. The instruments the company has to support clients with their climate goals are as follows:
- Nasdaq has a majority stake in carbon crediting platform Puro.earth for engineered carbon removal.
- Nasdaq Sustainable Bond Network (NSBN), Sustainable Debt Markets and ESG Indices support both its Corporate Community and Investment Community through the provision of instruments that help achieve ESG ambitions and targets.
- Nasdaq Green Designations support equity issuers in Nasdaq European markets with their green business models and strategies.
- It provides ESG data collection, analytics, and reporting services through Metrio and Nasdaq OneReport.
- Metrio is a sustainability reporting platform. Metrio’s solution can analyze CO2 emissions, waste, gender equality, community investment, and more. The software-as-a-service platform is also compatible with a variety of ESG frameworks, standards and ratings integrated within Nasdaq OneReport, such as including Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Task Force on Climate-Related Financial Disclosures (TCFD) and the United Nation’s Sustainable Development Goals (SDGs), as well as MSCI, Sustainalytics, Principles for Responsible Investment (PRI) and Institutional Shareholder Services (ISS).
- OneReport is an ESG data management, workflow and reporting tool that allows companies to communicate their climate exposure effectively. OneReport’s continued advancement and evolution is driven by our customers’ demands for a tool which is ahead of the market and is able to rapidly integrate new and anticipated ESG regulations and frameworks.
- ESG Data Hub is a data solution, which offers investors and other stakeholders easy access to a wide range of unique and comprehensive ESG data sets, accompanied by detailed product descriptions, unique selling points (USPs) and use cases. The platform enables users to find data sets relevant to specific United Nations Sustainable Development Goals (SDGs) and encourages investors to consider the ESG impacts of their investments.
- eVestment provides institutional investment data, analytics and market intelligence covering public and private markets. Asset managers and general partners reach the institutional marketplace through our platform, while institutional investors and consultants rely on eVestment for manager due diligence, selection and monitoring. eVestment brings transparency and efficiency to the global institutional market, equipping managers, investors and consultants to make data-driven decisions, deploy their resources more productively and ultimately realize better outcomes.
- ESG Advisory is a service solution that pairs companies with consultative ESG expertise to help analyze, assess and action best-practice ESG programs with the goals of attracting long-term capital and enhancing value. Services include ESG strategy development, Board engagement strategies, ESG investor engagement advice, and ESG reporting guidance for companies.
- Technonology solutions, for example, Climate Impact X (CIX), a global marketplace and exchange for quality environmental credits, will leverage Nasdaq’s cloud-based trading technology to power its new spot exchange platform. Established in Singapore as a joint venture between DBS Bank, Singapore Exchange, Standard Chartered and Temasek, CIX aims to help innovate the carbon markets and drive environmental impact at scale through a suite of trading venues.