The City will remain at the vanguard of financial innovation post-Brexit
A year ago, London Stock Exchange celebrated the first Green Bond from China to be listed internationally, a landmark renminbi and dollar issuance by the Agricultural Bank of China.
I wrote here at the time how London was leading the world in financing the global shift to a low carbon economy – a transition endorsed by G20 leaders under China’s presidency.
Much else has happened in the 12 months since, not least the referendum on Brexit which caused many to predict London would automatically diminish as a financial centre.
But, as throughout our 300 year history, we have remained focused on our core mission to run the most global marketplace with high integrity, supporting access to growth capital for small and large companies in the UK and globally.
With record trading volumes in recent months, our markets have remained resilient and open to investors around the world.
Read more: Brexit: Unequivocally good for the UK economy in the short and long term
This resilience is underpinned by London’s natural strengths. Not just our timezone, language and rule of law, but also the deepest, most liquid multicurrency capital markets and the widest breadth of investors (40 per cent are from the UK, 10 per cent from Europe, the remainder from the rest of the world, particularly North America, the Middle East and, increasingly, Asia).
Crucially, with our sophisticated financial ecosystem, there is also our ability to constantly be at the forefront of innovation.
Days after the referendum, I joined chancellor Philip Hammond’s delegation to China. Before that I was in India.
The chancellor in China (Source: Getty)
These two fast growing major economies need hundreds of billions of dollars from international capital markets to finance sustainable growth. They increasingly do this in their own currencies to manage foreign exchange risk and support internationalisation of their markets, through offshore instruments colloquially known as Dim Sum (renminbi) or Masala (rupee) bonds. In recent months, London has played its traditional role embracing these changes.
This week we listed our hundredth Dim Sum bond, making us the leading market in Europe. This year we listed more RMB bonds than any other market outside Greater China.
Read more: First "Masala bond" issued on London Stock Exchange
We are the leading venue for Masala bonds. Just after the referendum, HDFC – India’s largest financial services conglomerate – listed a near half a billion dollar bond saying they had scoured the world, but London “distinguished itself by offering a wide range of financial instruments” and “enjoys unshakeable trust from international investors.” They have come back to the market three times since, including a partnership with the Canadian Province of British Columbia which we celebrated this week.
The leading Vietnam-focused investment management company listed its flagship fund (worth nearly $900m) in London and, since June, we have also welcomed listings from Egypt, the US, Israel, Finland and Italy.
Our uniquely successful Aim market for high growth businesses has seen a strong performance, with 33 new firms raising £1bn, including for the technology companies of the future.
We are leading in other areas of innovative finance too – namely “green finance”, with both issuers and investors increasingly interested in these products that support the transition to a greener economy. The UN has identified a $2.5 trillion global shortfall in green capital and, as a UN Sustainable Stock Exchange, we know that exchange groups like ours have an important role to play.
There is a huge green capital gap London can help fill (Source: Getty)
Last year we were the first global exchange to launch a green bond platform. Today our sustainable offering is the most comprehensive of any international exchange: home to bonds issued in seven different currencies, with world firsts – from Finland’s first ever green bond, by MuniFin, to a first-of-its kind $152m forestry bond by the IFC raising capital for reforestation in Kenya (with coupons payable in carbon credits), to the first ever Chinese green covered bond by Bank of China.
Green finance is at the centre of our Africa Advisory Group, which brings together African business leaders to develop the continent’s infrastructure.
Next month we will support a major green infrastructure coalition from Brazil, working with Canada and Climate Bonds Initiative.
Read more: How the City is tackling climate change risks
It is not just about raising capital though, but ensuring investors have the data and analytics to make informed decisions. Our ground breaking Low Carbon Economy data model, built by FTSE Russell, tracks companies that generate green revenues – a critical component missing from current sustainability models.
Two weeks ago, Legal and General Investment Management created a fund to track one of FTSE Russell’s new smart sustainability indexes, drawing on this model. Significantly HSBC UK announced they would move their £1.85bn defined contribution pension fund into this fund.
This is the first corporate pension scheme to select a climate change index as its equity default option and heralds a new era for integrating climate measures into default DC pensions – showing the UK to be at the forefront of innovative global finance.
All this is why we have launched the Global Sustainable Investment Centre in London – the first platform to provide a comprehensive suite of everything green capital markets can offer investors and issuers around the globe, be they retail or institutional.
So yes the Brexit vote and global economic uncertainty present clear and real challenges, and we will play our part with the government to protect our unique financial services ecosystem, which supports companies in the UK and around the world.
But let’s also build on London’s unique qualities and record of innovation and remember that it is customers, not pundits, who decide where business is done.