This allows governments to lower their cost of capital and reduce their debt service burdens, which frees up budget for spending on social good such as clean energy, hospitals, and schools. We call this Euroclearability.
The same process can happen with sustainable finance. In our recent report with PwC, we showed that expanding the sustainable market to more asset classes and participants will deliver widespread dividends. But this is not without challenges. We need to better match investor requirements for ticket size and returns, with the mix of issuers and sustainability themes that are available in the market. The issuing process for sustainable securities is also complex and time consuming. Moreover, sustainable finance comes with heavy obligations on due diligence, reporting and verification, all of which are further headwinds and as a result, many issuers are discouraged from raising sustainable finance.
But these barriers can be overcome through the developing of a central, standardised process that lowers the cost of issuance, allows the efficient sharing of data that the market requires, and broadens the scope of the market both in terms of asset classes and participants.
A further incentive is that since the end of the global financial crisis we have seen a wider range of issuers becoming excluded from the traditional financial markets. Changes to bank capital regimes, strengthened collateral requirements, and reduced risk appetites have made today’s financial markets more exclusionary, not less. If the sustainable financial markets are to thrive, we need to reverse this trend and increase financial inclusion. As an FMI we are in a unique and precious position to be able to help with that and get the finance to where it is needed the most.