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On Nasdaq’s latest earnings call, CEO Adena Friedman said the stock exchange’s efforts to make companies greener, fairer to workers and more socially responsible have been successful.
“It’s definitely the highest growth segment of the business,” said Friedman, referring to Nasdaq’s revenue in its ESG segment, which advises companies on their environmental, social and corporate governance policies and helps them meet disclosure requirements.
Friedman said the consulting side of the business still generates the most demand, but the biggest opportunity is selling software and data tools to help companies meet the reporting requirements required by rating agencies, investors and regulators.
“This will be a long-term growth driver for us,” she said.
But the biggest threat to Nasdaq ESG trading comes from the source, Nasdaq.
The company is fighting to undermine the U.S. Securities and Exchange Commission’s unprecedented climate change disclosure proposal, which would have required companies to directly disclose their greenhouse gas emissions and have them verified by a third party.
If implemented, the proposal will undoubtedly increase subscriptions to the Nasdaq platforms Metreo and One Reports, which are designed to measure and disclose ESG information for companies. Dozens of public companies to blast the SEC’s proposal, the stock exchange worries the rules could hurt its core listing business. Nasdaq last year beat rival NYSE as the site of most initial public offerings.
The stock exchange has asked the SEC to rewrite the proposed rules — a move that would muddy the waters and delay the initiative. In a letter to regulators in June, Nasdaq encouraged the SEC to move away from mandatory reporting and instead implement a “complement or clarify” system.
Nasdaq’s climate proposal may deter many companies from going public because of higher compliance costs and increased risk of litigation from investors.
Morningstar analyst Michael Miller said the shift from voluntary reporting to “mandating people to do it” is moving companies to the types of instruments traded on Nasdaq and its rivals, including the Big Four accountancy groups and several startups. .
“Nasdaq’s stance on climate regulation may be seen as counterproductive to the interests of their ESG business, which would likely benefit from broader reporting requirements,” he said.
Simon Clinch, an analyst at Atlantic Equities in London, said the US regulator’s proposal is a “big deal” for Nasdaq ESG trading. “The United States is the next leg of growth and the SEC’s climate disclosure rule is definitely a tailwind,” he said.
Although he said there would still be a “long-term global opportunity” for stock exchange ESG trading even in the absence of a strong US presence, he said: “If there is zero compliance, that will probably slow the growth a bit.” Disclosure rules.
The apparent position of the Nasdaq conflict makes financial sense. Its ESG business, growing at a fast clip, generates a fraction of the revenue generated by its core listing business.
Although the company does not break out its ESG revenue, its investor relations and ESG division generated $122mn in revenue in the first six months of this year, up from $112mn in the same period in 2021. Revenue from its listing business was $214mn. .
“Listing is one of the most important businesses for Nasdaq, so they try to protect that business,” said Oppenheimer & Co. analyst Owen Lau.
Nasdaq is not alone in fighting the SEC’s climate proposals. America’s largest corporate lobby groups oppose the proposed rules, including the Business Roundtable, which has called them “unworkable.”
But rejecting a key plank of the stock exchange’s ESG agenda is an uncomfortable position for a company that has burnished its socially responsible credentials to curry favor with investors. Starting this month, companies listed on the Nasdaq will be required to have at least two different directors or explain why they don’t.
And among the companies the SEC is backing in its climate push are groups like Microsoft and Salesforce — tech businesses that the Nasdaq is known to attract.
According to Nasdaq, “As a market operator, we set our positions with the goal of making the overall operation of the market beneficial to all participants.”
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