Nasdaq's green equity plan gives new ESG product key endorsement

New York

A GREEN product that didn't exist a little over a year ago will soon have its own trading platform with Nasdaq. The exchange is launching a green equity label programme in the Nordics.

If the new framework succeeds in the region, it will probably also be adopted in the United States, said Adam Kostyal, head of European listings. "We are connecting the dots here and if it works, if it becomes adopted and we see it spread, then we have a framework that we can adopt elsewhere," he added.

Green equity has only existed since May last year. It's generally offered in the form of shares issued by listed companies that are certified as environmentally friendly.

There's no single standard for certification yet, but backers say they expect green equity to follow a similar path to that laid by green bonds, which had their debut just 13 years ago. This year, issuance of environmental and social bonds could reach US$350 billion.

Goldman Sachs Group recently threw its weight behind the idea, and said last month it's "seeing movement" within green equity as a new product for investors looking for assets that meet environmental, social and governance (ESG) standards. As an investment product, green equity is just in its infancy, but "as this evolves, you will see more players", Mr Kostyal said. "You will see potentially different standards evolve.

And the question is then, what is the definition of green?"

The new Nasdaq platform sets a minimum standard for what can be sold as green.

"We are setting a level playing field," Mr Kostyal said. "The current standards were a bit vague; each verifier had a different approach."

The project got rolling last year when Nasdaq approached Swedbank, one of Sweden's biggest banks and the first to certify green equity. It's since done three more certifications.

Swedbank chief executive Jens Henriksson said that getting Nasdaq to put its name to green equity means "you can have an impact".

Under Nasdaq's programme, which is voluntary, firms will get a green label if they generate over 50 per cent of their sales from activities that are climate friendly and if more than 50 per cent of investment budgets go to green activities. Sales from fossil fuels can't exceed 5 per cent.

Nasdaq also will offer a green equity transition label, for companies that don't meet the requirements but are working toward getting there. For now, just a handful of companies have applied for a green label.

But, according to Mr Kostyal, more will follow amid new European Union requirements on sustainable investing and as investors try to cleanse their portfolios of polluters.

"It will be interesting to see how this evolves on an international level," he added. "In the US, clearly this is one of the top topics that we have, but here in the Nordics it's not a topic anymore. It's a reality." BLOOMBERG