The Luxembourg Stock Exchange says it has become the first stock exchange globally to introduce a platform for green financial instruments.
It’s the latest move in what amounts to a scramble among jurisdictions to become the world’s green finance hub. France for example this week announced its aim to be the ‘home’ of green finance (see separate story). Other centres such as London and Dublin are also eyeing the green finance crown.
Branded Luxembourg Green Exchange (LGX), the Grand Duchy’s offering goes live today. It said that access is limited to issuers who comply with “stringent eligibility criteria” and the platform aims to set a new benchmark for the “rapidly evolving” green securities market.
The Luxembourg exchange, which listed its first green bond in 2007, is a member of the UN’s Sustainable Stock Exchanges Initiative and the move follows last week’s launch of a new climate finance label by LuxFLAG, the Luxembourg Finance Labelling Agency.
“New issuance of green securities has taken off since COP21,” said exchange CEO Robert Scharfe, referring to the Paris climate talks at the end of last year.
“The green market has enormous potential but this needs to be matched by interest from investors. By setting strict standards for green securities, LGX aims to create an environment where the market can prosper. With LGX, a dedicated platform for both issuers and investors, we are granting the solution for financing green projects.”
LGX aims to gathers issuers that dedicate 100% of the raised funding to green investments, immediately housing most of the 114 Luxembourg-listed green bonds—worth over $45 billion.It’s claimed to be the first time that a stock exchange has required green securities to adhere to strict eligibility criteria, including:
• Self-labelling as green or equivalent (e.g. climate-aligned). The issuer has to clearly state, during the application process, the intended green nature of the security.
• Use of proceeds. Need of a clear disclosure that the proceeds are exclusively used for financing or refinancing projects that are 100% green, according to the GBP or CBI eligibility taxonomy.
• Ex-ante review and ex-post reporting. Issuer’s commitment to provide both independent external review and ex-post reporting – a requirement unprecedented on the market.
Access to LGX is banned for securities on the excluded categories list comprising of, but not limited to: nuclear power production; trade in CITES (Convention on International Trade in Endangered Species); animal testing for cosmetics and other non-medical products; medical testing on endangered species; fossil fuels.
The executive added: “As the leading exchange for green bonds, LuxSE can play a vital role in shaping the future of green finance. In fact, we regard the development of this market as our duty.”
The exchange says that while the market for green finance is growing fast, it still represents “an almost invisible fraction” of overall capital market funding.
Scharfe said: “That’s because investors are sceptical, and understandably so, about how the proceeds for green projects are being allocated. It’s not enough to say ‘green is green’.
“Investors are becoming more sophisticated and are demanding more granular information. Equally, issuers must be convinced of the benefits a truly green bond market can provide.” Announcement