The Role of Stock Exchanges in Fostering Economic Growth and Sustainable Development

Joint publication by UNCTAD and the World Federation of Exchanges

Our objective with this joint report with the World Federation of Exchanges (WFE) is to engage with the critically important question of how stock exchanges can promote economic development and begin to explore how this can be (and is already being) expanded to address some of the twenty-first century’s biggest development challenges.

In 2015, member States of the United Nations launched the Sustainable Development Goals (SDGs). These goals lay out the pathway for the future we all want and include targets like: eliminating poverty, achieving gender equality, addressing climate change, and ensuring inclusive and sustainable economic growth. Achieving these goals is in everyone’s interest. Profitable exchanges, investors and companies rely on sustainable, healthy and prosperous societies.

Achieving these goals requires that we all make a contribution to building a better tomorrow. The role of the public sector in this effort is fundamental: we need smart policies, better policy coherence between ministries, and incentive structures that reward investment in sustainable businesses. But none of this will be enough without the private sector’s contribution, including stock exchanges and other capital market stakeholders.

Stock exchanges can contribute in two main forms: the first is promoting good governance in business practices and the second is promoting investment in sustainable development.

Good governance in the twenty-first century means good practices on environmental, social and corporate governance issues, what many investors refer to as ‘ESG’ issues. Policy makers, investors and consumers increasingly demand it. Stock exchanges have a strong role to play in this area. They have traditionally been responsible for helping to form well-regulated markets with transparent, well governed companies. And today stock exchanges are helping companies adopt best practices on ESG issues.

With the right policies in place, exchanges can play an important role in fostering economic development and innovation. This is an important function by itself. However, there is increasing recognition that to address the challenges of the twenty-first century, we need economic development that is sustainable and inclusive.

We also need to mobilise significant financing to achieve the SDGs. Meeting the SDGs will require massive injections of investment. In our 2014 World Investment Report, we estimate that global investment needs are on the order of $5 to 7 trillion per year, with about $3.3 to 4.5 trillion per year in developing countries alone. Much of this is for basic infrastructure, food security, health, education and climate change mitigation and adaptation. Stock exchanges can be instrumental in meeting these investment needs and are recognised as an important element in UNCTAD’s Investment Policy Framework for Sustainable Development .

In addition to their traditional role in contributing to economic development, exchanges are increasingly asked to address these broader issues. Given the size of the challenge it is critically important to have well-functioning exchanges fit for purpose.

This paper sets the baseline for future work around policies and processes for maximising the development contribution of stock exchanges. UNCTAD will continue to support stock exchanges, including through the UN Sustainable Stock Exchanges initiative, to assist exchanges in their endeavours to promote good corporate governance and investment in sustainable development.

James Zhan
Director, Investment and Enterprise Division (UNCTAD)
The Role of Stock Exchanges in Fostering Economic Growth and Sustainable Development  - Joint publication by UNCTAD and the World Federation of Exchanges  (WFE/UNCTAD/2017)
7 Sep 2017