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Sustainable Trading Seeks to Lift ESG Performance of Sell-Side and Buy-Side

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A new not-for-profit is seeking to establish ways to improve the ESG performance of the trading systems that keep the finance sector humming. Sustainable Trading wants to find best practices for making trading greener and socially more impactful, while also working out ways to benchmark its performance. The initiative, created by UK-based industry veteran Duncan Higgins, has signed up the London Stock Exchange Group, Euronext and Credit Suisse among its 30 founding members.

“We are crowdsourcing the best ideas from the industry to set out as industry best practices,” Higgins told A-Team’s Trading Tech Summit (TTS) in London on the initiative’s launch day this week.

“In my engagement with trading people in the industry over the past year, almost none of them had considered that ESG needed to be brought into trading, but there needs to be focus within trading on ESG.”

The plumbing of the financial sector has become the focus of concern among sustainability proponents as the use of energy-intensive electronic and algorithmic trading has surged. A survey by JP Morgan this month found that 80% of traders expected to see the use of such methods increase further this year. Condemnation has also been heaped on cryptocurrency trading, which relies on the mining of digital coins using huge amounts of computer power.

Among Sustainable Trading’s chief aims is to reduce the carbon footprint of the sector, which Higgins said relied on between 50 and 100 energy-intensive data centres. It also hopes to bring greater diversity and equality to the sector.

Greener Trading

Sustainable Trading will operate as an ideas-sharing network that will seek to establish best practices to achieve its goals. Members will be expected to voluntarily offer suggestions and eventually a consensus will be reached that can be communicated across the industry.

Higgins said he hoped representatives from the entire trading supply chain would collaborate to ensure investors knew that their trades were being executed by systems as sustainable as the assets they were buying into.

“It’s not easy to make a choice about which [ESG] fund to invest in,” he said, adding that sustainable investors do so because they want their capital to have some purpose beyond a good return.

“But once that choice has been made, what happens from there? How does that purpose get transmitted through the supply chain? We need a sustainable marketplace throughout for those transactions to occur.”

Higgins said he was delighted to have members from the technology and markets side, as well as buy and sell sides, because technology provides the backbone of trading infrastructure. “We want them to get involved in this initiative because the change from an environmental perspective is going to come from technology, probably from independent technology companies,” he said.

The full list of fouding membership at launch also comprises Aegon Asset Management, AllianceBernstein, ArchES, AXA Investment Managers, Bank of America, big xyt, BMLL Technologies, BMO Capital Markets, BTIG, Credit Suisse, Equinix, Federated Hermes, Instinet, Invesco, Investec, Jefferies, Liberum, Liontrust, M&G plc, Neovest, Ninety One, Options Technology, Outset Global, Redburn, Russell Investments, State Street Global Advisors, T. Rowe Price and Union Investment.

Higgins told TTS that the idea for Sustainable Trading came about as the result of a chance conversation. “I’d been thinking about the impact of trading – the resources that are used within the trading process and within the analytical process, and I realised that there was a gap in the focus on ESG within finance,” he said. There had been a “huge amount of focus on it from an investment perspective, but trading had been missed out”.

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