A Guide to Getting Started with Sustainable Debt: All the Best Introductory Resources in One Place
An Introductory Guide to Sustainable Debt.
The Long-Term Stock Exchange (LTSE) is an SEC-registered national securities exchange. LTSE supports long term-focused companies and like-minded investors. Its vision is to have a public market that supports investment, experimentation and scaling that companies can use to find continuous success.
We spoke to Shahnawaz Malik, Head of ESG at LTSE, to understand more about the exchange’s principles and philosophy. Shahnawaz leads the company’s focus on ESG strategy and is responsible for partnering with both companies and investors in building their ESG policies and practices.
I started my career in asset management during the 08/09 financial crisis - managing a multi-asset portfolio. From that experience, I gained a good grounding in portfolio management and security valuation. It also provided a solid foundation in understanding how markets operate and the dynamics involved within investment decision-making.
Throughout that period, there was a disconnect between the markets and what was unfolding within the ‘real economy.' Popular opinion was that banks were to blame for the crisis and almost overnight, governance became ‘material’. It always had been - but now we had case studies and data. It marked the end of an era in which everyone was just solely focused on financial returns, and it ushered in an era of what has now become ESG investing. That signalled my entry into the ESG space.
A few years later, having caught the emerging market bug from my time in Hong Kong with Barclays, I moved to Standard Chartered. In one of my early conversations with a Scandinavian Institutional Investor, a new term, ‘impact investing,’ was thrown at me and I was hooked. The conversation had moved to understand the true impact of an investment, as investors believed that capital can be redeployed to solve the world's most pressing issues. A move to New York then transpired in what was supposed to be a short-term move to set up a single-family office. As that was coming to an end, I was put in touch with LTSE and was immediately inspired by their vision.
“There was no way I could turn down the opportunity to try and reinvent the role of a Stock Exchange. Companies that list on LTSE hold themselves to a higher standard for value creation with their customers, employees, society - and ultimately - their investors.”
Security exchanges are unique; essentially, they sit between investors and companies. It’s not a stretch to say both are struggling with ESG given the fragmented market. A lot of the companies we work with are 6-18 months away from the initial public offering (IPO).
“When you think about the IPO roadmap; ESG can no longer be an afterthought.”
I work with the next generation of founders who have a very different value system. They care a lot about innovation, sustainability, diversity, equality, and they genuinely believe that companies can be a force to change the world for the better. This is often demonstrated through several internal policies and initiatives.
“My job is to essentially demystify the ESG landscape and help companies get ‘ESG ready’ for the Capital Markets. However, and most crucially, my role involves ensuring that the companies we work with are built for the ‘long term.’”
With respect to investors, my role is to bring ‘ESG investors’ that have a long-term vision to the table. We believe that capital markets are too short-term orientated. Rather than build an exchange around short-term volatility, we want to centre it around long-term companies and long-term investors. In doing so, we can create sustainable economic growth from which broad society can benefit.
LTSE is an SEC-registered securities exchange for companies and investors who share a long-term vision. One of the biggest things that we're looking to solve is this problem of short-term thinking. When you become a public company, you start living quarter to quarter. That often leads to cannibalising behaviours - like starving investment in innovation. I’ve seen it first-hand: when a company has a bad quarter, R&D is often the first thing that is cut.
“LTSE is helping companies reimagine what it means to be a public company in the modern era; one that thinks in generations, rather than quarters, and prioritises all stakeholders, not just shareholders.”
We needed to reimagine the actual role of an exchange to help companies operate with a different set of incentives. We are creating a system that's focused on long-term value creation. As a secondary listing venue, on top of meeting financial and governance thresholds of the primary exchange, companies that list on LTSE are required to publish and maintain 5 long-term policies. These policies are designed to support long-term strategies and give shareholders and stakeholders visibility into the practices, plans, and measures companies will take to achieve those goals.
“We're excited to announce two committed listings, Asana and Twilio. They are two technology companies that lead on innovation, a focus on talent, and a dedication to serving their customers and communities.”
They realise the heightened expectations investors, talent, and customers place on companies. They have decided to list to continue prioritising their long-term strategies and values and get validation for those commitments. As Twilio CEO, Jeff Lawson, recently told the Wall Street Journal, “LTSE can help give a stamp of approval to companies who make ESG pledges” and he hopes “listing on LTSE can attract more long-term investors.”
Positively! Investors are always looking for an edge. Not only are investors trying to find companies from an attractive valuation perspective, but they're also looking to find companies that are very much built for the long term. You could call them ‘resilient’ companies. In ESG language, it means finding companies that integrate ESG within their fabrics.
As it stands today, it’s tough to navigate the ESG landscape, and even tougher for small-cap and private companies who are thinking of joining the capital markets. As ESG has come to the forefront, companies are now being bombarded with questionnaires and not all of them are in a position to hire a 100-person sustainability team. That’s not to say the majority of these companies are not aware of ESG issues - it’s just tough to know where to start.
As an exchange with a differentiated set of long-term listing standards, we adhere to a principle-based approach, rather than a prescriptive one. This was intentionally designed to recognise that no two companies are the same.
There has been a well-documented trend of companies staying private for longer which can be attributed, in part, to the rigidity and complexity of the public markets. Fundamentally, we want more companies to join the public markets to foster equitable long-term sustainable economic growth so that all stakeholders can reap the benefits.
We built LTSE to align with the next generation of founders and leaders of companies who have a very different value system. They care deeply about environmental issues, diversity, and innovation. They genuinely believe that their companies can be a force for good. Our goal is to return companies and their long-term stakeholders to the centre of capital markets, and by doing so, deliver on the promise of business and capital to help solve the world's biggest problems and to produce positive change.
LTSE was founded by Eric Ries, technology entrepreneur and best-selling author of The Lean Startup and The Startup Way. Eric first proposed the idea of the Long-Term Stock Exchange in the last chapter of The Lean Startup in 2011.
“Part of the reason established companies struggle to invest consistently in innovation is intense pressure from public markets to hit short-term profitability and growth targets. What is needed is a new kind of stock exchange, designed to trade in the stocks of companies that are organized to sustain long-term thinking. I propose that we create a Long Term Stock Exchange (LTSE)”
That was written over 10 years ago now, so it's been a decade-long journey from idea to formation. Eric founded LTSE at the end of 2015, and we received approval to begin operations from the SEC in the spring of 2019. The exchange officially opened for business in September 2020. The fundamental belief around the creation of LTSE has never wavered - we need institutions that are fit-for-purpose for the 21st Century.
“We hope that LTSE will succeed, in its own right, but also that our efforts will inspire many people who are reading this to reinvent the rest of our civic fabric.”
If anyone wants to get in touch to collaborate with LTSE, is there any type of group or person you're looking to collaborate with? And, if a company wants to list on LTSE, what can they do?
We help companies to put the frameworks in place for them to be able to achieve success over the long term. If a company is interested in learning more about listing on the exchange or about our software and services, do reach out. We are also always looking to build relationships with institutional investors. We want investors to think like owners and be long-term oriented. We're looking to align with investors who adopt that kind of philosophy.
An Introductory Guide to Sustainable Debt.