Financial and Monetary Systems

Scotland wants to create an ethical stock exchange 

A pedestrian holding his mobile phone is reflected on an electronic board showing the graph of the recent fluctuations of Japan's Nikkei average outside a brokerage in Tokyo February 5, 2014. The Nikkei average rose 1.2 percent in a volatile session on Wednesday, rebounding from a four-month low as investors scooped up recently battered stocks such as Panasonic and Toyota Motor following strong earnings reports. REUTERS/Yuya Shino (JAPAN - Tags: BUSINESS TPX IMAGES OF THE DAY) - GM1EA2516EX01

Companies that wish to join must prove they have a positive social impact. Image: REUTERS/Yuya Shino

Douglas Broom
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It was 1973 when the last Scottish Stock Exchange executed its final trade and merged with London to create a single bourse for the UK. Now a group of Edinburgh-based investors say they have funding to launch a new national exchange for Scotland.

The group, who have formed a company called Bourse Scot, already have the backing of the Scottish government. Last week they announced they had raised a “seven-figure equity investment” from backers and plan to open the new exchange later this year.

They have partnered with Euronext, which runs stock exchanges in Amsterdam, Brussels, Dublin and Paris, to provide its Optiq platform to run the new Scottish exchange, to be based in Edinburgh. Talks are underway with two European clearing houses to handle transactions.


Investing for social impact

But this will be a stock exchange with a difference. The Bourse Scot team are already interviewing potential players to evaluate their ethical credentials. Companies who wish to raise money on the new exchange will be expected to meet high moral behaviour standards.

Bourse Scot CEO and founder Tomas Carruthers told the news site: “The project is strongly informed by my vision of a capital market that serves society, that can be trusted to serve all stakeholders – a market which social entrepreneurs, charities and local authorities can use and find investors who are aligned with their mission.”

Listed companies will be required to report on their “purposeful and positive impact on the communities where they operate.” Carruthers says his will be the first exchange in the world to set such rigorous standards for impact reporting.

The social stock exchange movement has gained momentum around the globe. Some act as true exchanges where investors can buy and sell shares while others provide research and directories of companies which pass a social impact test.

Social exchanges that enable trading have been established in Singapore and South Africa while exchanges in Brazil, Canada, and the UK introduce potential investors to socially responsible enterprises. Kenya has become the focus for impact investing in Africa after an exchange in Nairobi launched a Growth Enterprise Market Segment (GEMS) for smaller companies.

Carruthers does not believe high standards will discourage investors or companies as social impact disclosure is already common in financial reporting. Ethical investors already expect companies to provide evidence that they treat all stakeholders fairly.

Top-performing ethical funds in the UK

 The UK’s top-performing ethical funds
Image: Investors Chronicle

Last year, a World Economic Forum report on impact investing said there had never before been such a global focus on the private sector’s responsibility to do good for society and the environment.

Have you read?

Pornography and gambling? No thanks

Carruthers has made clear the kind of company that will not be allowed to trade: “We’re not building a stock exchange for pornographers and gambling or gaming companies.”

It’s now over to the UK’s financial regulators to approve the plan. Carruthers’ track record includes founding the online small investor site Interactive Investor. He is also a trustee of NEST, the UK government-backed personal pension provider.

Scotland has had five stock exchanges in the past 175 years. Glasgow was the first, in 1844, followed the same year by Edinburgh. Independent exchanges followed in Aberdeen, Dundee and Greenock. A single Scottish Stock Exchange based in Glasgow was formed in 1962.

Recruitment of the top team at Bourse Scot is already well advanced. The company intends to practise what it preaches by ensuring it is a fair and equal employer. Half of the new board posts are already reserved for women.

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