Lessons from Malaysia on sustainable capital markets
Securities traders at the NSE. Capital markets players, particularly stock exchanges and regulators, are critical in driving the global shift towards sustainability.
This month, I had the privilege of representing the Nairobi Securities Exchange PLC at the 63rd General Assembly and Annual Meetings of the World Federation of Exchanges (WFE) in Kuala Lumpur, Malaysia.
The WFE’s annual meeting serves as a vital platform for industry leaders, regulators, experts, and stakeholders from the global capital markets to come together and deliberate on the pressing issues shaping the future of financial markets.
These discussions are particularly crucial in today’s rapidly changing economic landscape, as the need for capital markets evolve to address emerging challenges and seize new opportunities grow. They are an opportunity for stakeholders to collaborate on solutions aimed at strengthening financial markets, fostering innovation, and ensuring their resilience amid growing global uncertainties.
As I travel towards the venue of this annual meeting, I am deep in thought, highly impressed by the progress achieved by this Asian nation, which not long ago, shared similar socio-economic challenges with Kenya but more importantly, keen on the topical issues that will take center stage on account of the ongoing geo-political and economic developments that have affected capital markets across the world.
Environmental, Social and Governance (ESG) took centre stage, with players yet again raising the profile of this topical issue at a global platform.
Capital markets role in accelerating sustainable development was reiterated with the role of exchanges to the adoption of ESG across the globe highlighted.
The truth is, as businesses focused more on their core purpose, the operating environment—both domestically and internationally—has undergone a profound transformation.
Stakeholders, including domestic and international investors, issuers and employees are increasingly demanding that companies not only pursue profit but also integrate sustainable business models that create lasting positive change.
This growing emphasis on sustainability has become a basic driver of corporate strategy, with ESG principles now seen as essential for long-term success.
This shift is compelling companies to reassess their operations and adopt more sustainable practices that align with the evolving expectations of global stakeholders.
The growing global focus is also reshaping investment behaviour, with ESG-aligned practices now a key factor in investment decisions.
Over the past few years, investors have become more proactive in evaluating companies based on their sustainability performance, recognising that it is essential to mitigate risks such as climate-related challenges and poor governance.
As investors increasingly prioritise companies that demonstrate strong ESG performance, those that fail to integrate sustainability into their operations risk losing access to capital.
In this evolving landscape, capital markets players must not only facilitate investment but also act as stewards of sustainability, ensuring markets continue to serve as engines of long-term value creation while promoting transparency, resilience, and responsible business practices across the board.
Capital markets players, particularly stock exchanges and regulators, are critical in driving the global shift towards sustainability.
Stock exchanges, as key facilitators of capital allocation, are increasingly incorporating ESG reporting and transparency requirements into their listing rules, guiding issuers toward more sustainable business practices and ensuring that investors have access to vital information for informed decision-making.
Regulators complement these efforts with policies that promote responsible investing, corporate accountability, and enhanced climate risk management.
The annual meeting also highlighted the critical need to support market players in navigating ESG reporting standards. With various ESG reporting frameworks currently in use, providing clear guidance is essential for enhancing both sustainability reporting and adoption.
The introduction of IFRS S1 and S2 represents a new paradigm in reporting, with many countries moving toward jurisdictional compliance, which is expected to drive greater adoption of sustainability practices both locally and internationally.
To achieve alignment across the market, infrastructure, exchanges, regulators, and other stakeholders, including listed companies, academia, clearinghouses, and investment bankers, must collaborate on a strategy to bridge information asymmetry. This collective effort will be key to fostering a more transparent and sustainable market.
The meeting also addressed the technology revolution and its impact on the future of markets, particularly the opportunities and risks posed by artificial intelligence.
The rapid advancements in software and hardware have shortened trading cycles, while the rise of crypto assets calls for a coordinated regulatory response from the Central Bank of Kenya and the Capital Markets Authority. To ensure the responsible integration of these technologies, the meeting decided to develop a white paper on crypto and AI to guide their implementation and address potential risks.
ESG has evolved from a trend to a global competitive necessity, and capital markets are uniquely positioned to lead the way in mitigating carbon emissions and promoting sustainable finance.
The Nairobi Securities Exchange (NSE), for example, takes pride in being one of the first stock market in the region to successfully launch a green bond market which resulted in the listing of the first corporate sector green bond in Africa, Acorn Green Bond, and cross-listed on the London Stock Exchange.
As the development of green financial instruments presents challenges, it also highlights the importance of uniform sustainability reporting standards. The NSE has long embraced ESG principles, encouraging both listed and non-listed entities to produce sustainability reports that reflect actionable steps to tackle global challenges.
As signatories to the Paris Agreement and active participants in COP 28 and COP 29, Kenya is committed to advancing sustainability, with capital markets playing a key role in this ongoing journey.
