Frederik, can you share what has changed or developed since our last conversation two years ago?
Since our last conversation, there has been significant development around the urgency to achieve a credible pathway to net zero emissions. The focus has shifted to finding a practical path towards net zero, which requires immediate action rather than future promises. This urgency is evident both in corporate and industry perspectives as well as among nations under the Paris Agreement. The COP conferences in the past two years have highlighted this need for a real pathway to net zero.
One of the most notable changes has been the impact of the Inflation Reduction Act (IRA) in the USA, which has provided strong incentives that have spurred a lot of activity in renewable energy and carbon removals. Both of these areas are crucial for the net zero journey. This increased focus on how to achieve net zero and the activities surrounding renewable energy and carbon removals are the most significant developments since we last spoke.
How important are financial institutions in achieving the targets set by the Paris Agreement, especially considering the high costs involved?
When discussing the costs associated with limiting global warming, it is important to remember that the alternative cost could be even higher.
The key to achieving the targets set by the Paris Agreement is securing the right funding and financing mix. It's essential to have a combination of public funding solutions and private initiatives working collaboratively.
Public engagement and funding are crucial in the early stages of large-scale developments, as seen in other industries. Once these initiatives are established, private sector investments can provide the long-term funding needed for further development.
The IRA in the USA is a clear example of how public funding and tax subsidies can stimulate a lot of initiatives, which are then supported by private sector investments. In the EU, the Fit for 55 package and the EU Green Deal are similar efforts, though perhaps not as straightforward as the IRA. The collaboration between public and private sectors is vital for the success of these initiatives.
Can you tell us about Puro.earth the Puro registry, and the first carbon removal price index?
We started to engage in the voluntary carbon market some years ago, driven by many corporations, including our customers, engaging in net zero strategies. We encountered Puro.earth, a pioneer in the durable carbon removal space focusing on engineered carbon removals. We liked their mission and ambition to build a market that rewards the production of negative emissions, so we became the majority owner of Puro.earth in 2021.
Together with Puro.earth, we have been developing the carbon removal market, leveraging our experience in operating trusted markets, our technology capabilities, distribution capacity, and corporate clients. In 2022, we launched the first reference price index specifically for engineered carbon removals. This index helps understand the price points of engineered carbon removals and supports both suppliers and buyers in making informed decisions.
In November 2023, we launched a new carbon registry in partnership with Puro.earth. This registry digitalizes the issuance, settlement, and custody of carbon credits, providing full traceability and transparency. Building integrity and trust in the carbon markets is crucial, and we are working to develop a well-functioning and trusted carbon removal market to facilitate the allocation of funding needed for scaling up negative emissions projects.
The sustainable bond market has grown significantly. Can you explain what it is and its role in the green transition?
The sustainable bond market creates incentives and transparency for long-term sustainable investments. In recent years, we've seen companies integrating sustainability into their balance sheets and using sustainable and green bonds to finance their transitions. In the Nordics, where we operate, we've seen strong growth in this market. Nasdaq Stockholm launched the first market for sustainable bonds in 2015, and we've now raised around 70 billion euros for sustainable investments.
Sustainable bonds are one component of the financial tools needed for the green transition. They provide a significant source of capital for companies and institutions, supporting their sustainable initiatives. Along with efficient markets for carbon removal, public funding, private equity, and bank financing, sustainable bonds play a crucial role in achieving our sustainability goals.
How has ESG reporting evolved since we last spoke, and what is Nasdaq doing to support this?
ESG reporting has become more prevalent, with the EU introducing the CSRD legislation around reporting requirements for corporates starting next year. In the US, the SEC has provided guidelines, though the final rules are still pending. Reporting requirements are increasing, and we aim to support our customers in managing these requirements.
We offer a platform called Nasdaq Metrio, a SaaS-based solution that supports sustainability reporting for corporates. Tools like this help companies deliver on their targets and comply with new regulations. ESG reporting is becoming a fundamental part of corporate operations, and we are committed to helping our customers navigate this evolving landscape.
What is your long-term vision for Nasdaq and the role of sustainability in the future of Sweden and Europe?
Our purpose is to advance economic progress for all, positioning ourselves as the trusted fabric of the world's financial system. Sustainability will not be a separate activity but fully integrated into business operations and national infrastructure development. This includes building infrastructure for electric cars, transitioning to renewable energies, and leveraging new technologies like carbon capture and storage.
Sustainability must become an intrinsic part of how we operate businesses. Every decision will need to incorporate sustainability considerations, ensuring long-term financial returns and understanding the impact of climate change.
Do you think everyone understands that sustainability can be profitable?
It's crucial to recognize that sustainable investments can have long-term financial returns. While it might be challenging to define exact measurements, we need to account for the business impact of climate change and the costs of failing to transition to a net-zero economy. Every decision must have a business case component, and as sustainability becomes fully integrated into operations, we will better understand how to compute and manage these risks.
What area do you think we need to create more awareness and education on to achieve sustainability goals?
One important point is the urgency to start now if we are to achieve our targets by 2040 or 2050. Large-scale carbon removal projects and other sustainable initiatives won't materialize out of thin air by 2048. If we don't make the necessary investments now, we won't have the capacity needed when the time comes. Creating awareness and education around the need for immediate action, despite the long-term nature of these goals, is crucial for achieving our sustainability targets.
