The Bermuda Stock Exchange has launched an environmental, social and governance (ESG) initiative that aims to empower sustainable and responsible growth for its member companies, listings and the wider community.

ESG criteria are standards for a company’s operations that investors use to screen potential investments, a BSX statement said. Environmental criteria consider how a company’s operations impact the natural environment and climate. Social criteria examine how a company manages relationships with employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

As a member of the World Federation of Exchanges, the BSX says it acknowledges its role as a leader to promote the development of a sustainable approach to the financial system and to take actions that transition towards a sustainable economy and financial future for current and future generations.

Greg Wojciechowski, chief executive officer of the BSX, said: “Stock exchanges are at the intersection between capital market players and their increasing responsibility to ensure business practices are geared towards positive environmental, social and governance practices. At the BSX, we are moving forward in encouraging and empowering social impact investing and compliance with best market practices and driving sustainable finance as ESG standards become increasingly important and formalised.”

The BSX says it has embraced the WFE’s five sustainability principles; to educate participants in the exchange ecosystem about the importance of sustainability issues; promote the enhanced availability of investor-relevant, decision-useful ESG information; actively engage with stakeholders to advance the sustainable finance agenda; provide markets and products that support the scaling-up of sustainable finance and reorientation of financial flows; and establish effective internal governance and operational processes and policies to support their sustainability efforts.

Rating agencies are increasingly looking at companies’ ESG initiatives and establishing robust ESG criteria, methodologies and assessment processes, the BSX said. This will add to a company’s overall rating beyond current credit ratings and thus increase transparency as well as determining “green” valuations.

Mr Wojciechowski said: “We have been in discussions with rating agencies who are formalising their criteria for ESG ratings and increasingly ESG ratings are being incorporated into the standard rating methodology for a company’s overall rating. We are also implementing ESG guidelines and listing criteria for member companies.”

The BSX, the statement said, is the world’s leading exchange for the listing of insurance-linked securities, which are acknowledged as sustainable development investments. Bermuda leads the world in this sector and of the 950 securities listed on the BSX, ILS comprises 330 listed issuers with $32.7 billion in market capital outstanding.

As investors look to grow their holdings in asset classes linked to social and responsible investments, this increased demand has created an expanded pool of investors in these securities which are helping to narrow the protection gap which are uninsured and underinsured risks.

Pension fund investors from several jurisdictions, the BSX says, have highlighted the social and environmental aspect of ILS and catastrophe bonds as they provide financing and liquidity when natural disasters strike. ILS is also recognised as being a sustainable development investment according to the United Nations’ sustainable development goals by helping build resilience to disasters and climate change.

As the world leader in ILS, Bermuda will play an increasingly important role in assisting communities around the world adapt to and recover from natural disasters, a changing climate and the resulting impact on vulnerable communities. And many of the BSX’s listings, especially in the ILS sector, are well advanced in developing products that move the sustainable finance agenda forward, according to the BSX.

Mr Wojciechowski said: “The emerging trend for entrepreneurs, investors and business people is to incorporate ESG initiatives when investing and doing business. This trend will only become more important in the future. What is clear is that companies can no longer simply seek to make a profit and return for shareholders. Success will also be measured by the extent to which companies embrace ESG initiatives. As climate change, social awareness and transparent governance become more important, at the BSX, we see this as an opportunity to help our member companies move forward with an ESG agenda that will assist communities around the world adapt to a changing world in terms of environmental change, social issues and more transparent governance.”

The BSX is also embracing ESG at their Hamilton headquarters and taking steps to improve energy efficiency, cutting down on waste, recycling and adopting a greener footprint.

Mr Wojciechowski said: “Bermuda is known as a centre of excellence for good reason — we have a great mix of concentrated intellectual capital, a responsive and responsible regulator, and access to markets worldwide. The island has been a trusted incubator for financial instruments that have helped investors, shareholders, governments and firms around the world manage their risks securely and cost-effectively for more than 70 years. The BSX looks forward to continuing its contribution to the real global economy and driving innovation behind the ESG agenda in Bermuda and around the world.”

Nandini Sukumar, chief executive officer of the WFE, said: “We are delighted to see BSX launch its ESG initiative today, and firmly support the exchange on its sustainability path. We are particularly pleased to see the BSX formally embrace the WFE’s five sustainability principles, principles that constitute a formal declaration by the WFE and its membership to take on a leadership role in promoting the sustainable finance agenda. We recognise that exchanges — as a central point of contact for issuers, investors and market intermediaries — act as important vectors in the transition to sustainability. We therefore take our role in tackling ESG issues, and that of our members, extremely seriously. Only by working in partnership with all industry stakeholders towards a common goal can we hope to move forward to an inclusive and sustainable economy.”