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The first ever green stock exchange was launched in Luxembourg


15/12/2016 08h00
Although since the COP21 conference the political world has become increasingly aware of the need to fight against climate change, there was no dedicated structure for green finance until recently. Therefore on September 27th, the Luxembourg Stock Exchange (LuxSE) wanted to set an example by launching the first green Stock Exchange in the world 100% dedicated to green projects. Interview with Chiara Caprioli, Business Development Manager and Green Team Member at Luxembourg Stock Exchange.
 
 
What is the origin of this project?
 
The Paris Agreement reached during the COP21 conference last year showed a political will to invest capital into environmentally friendly projects. The market for green finance is growing fast, and yet it represents an almost invisible fraction of overall capital market funding, around 1% of the whole fixed income universe. We believe this market is set to grow and could become a widely-sought asset class as investors seek to hedge the risks associated with climate change.
As the leading exchange for green bonds, we believe we have chosen to play a pivotal role in shaping the future of green finance. With almost half of the listed green bonds in the world being on the Luxembourg Stock Exchange, we felt a responsibility to act in the interest of the market, its growth and its enhanced integrity. This is why we launched Luxembourg Green Exchange (LGX) on September 27th that has received immediate recognition from industry peers.
 
 
How do you explain that Luxembourg has become the world leader in the field of «green» stock exchanges?
 
The Luxembourg Stock Exchange has been the global pioneer of green bond listing. In 2007, we became the first exchange to list a green bond, the European Investment Bank’s «climate awareness bond». Our reputation has been growing since, thanks to our transparent service and long-term cooperation with supranational organizations and multilateral development banks, so far the largest green issuers.
Demand for green investments is growing quickly but the risk of greenwashing threatens the integrity of the green market. As the market evolves, there is a growing need for greater transparency and that is exactly where we see our role as a gatekeeper of green information and a catalyst to standardization and growth.
LuxSE is the first exchange to apply on a mandatory basis to all issuers the highest industry standards. We expect issuers to be rewarded for their disclosure efforts by increasing reputation and stronger visibility, while investors will certainly benefit from accessing free and unrestricted information for green securities.
 
 
What are the eligibility criteria for issuers seeking access to this platform, in other words, what is a «green bond»? 
 
To join LGX, an issuer must first list its security on one of LuxSE’s markets: the EU-regulated Luxembourg Market (LuxSE) or the exchange-regulated Euro MTF market. Once listed, the issuer must fulfill several criteria for their security to be displayed on LGX.
First, he must clearly state the intended green nature of the bond by ticking the specific «green-box» in the application form to trigger LuxSE’s specific green assessment. Then he will have to clearly disclose the green nature of the use of proceeds into 100% financing or refinancing of green projects, according to the international taxonomy. Then, he’ll commit to provide both independent external review and ex-post reporting. The ex-post reporting should start 12 months after the green security has been issued. It can take many different forms, the rational being informing the public about how funds are being allocated to projects and, ideally, about the expected and actual environmental impact of the projects. 
 
 
How many issuers and how many green bonds does this stock exchange host and how much money does it represent? 
 
LuxSE hosts 114 green bonds, issued by 25 different issuers in 19 different currencies. Out of these 97 currently comply with LGX eligibility criteria and are displayed into the green exchange. This represents USD 45.7 bn worth of outstanding debt.
While we are fairly confident a number of additional issuers whose securities do not yet fully comply with LGX eligibility criteria will ultimately make it to the LGX platform, a green issuer who does not meet LGX eligibility criteria can still list on our markets (and label its green bond as green) without being displayed on LGX. The ‘bar is higher’ than the minimum requirements on LGX and we have created this platform specifically to guarantee high quality disclosure. It is a sort of «dark green» transparency label we are offering via the LGX display.
 
 
What kind of guarantee can you give to investors? 
 
Potential investors looking to invest in green securities and that value transparency will benefit from our new platform. Each investor will normally be looking for different shade of green depending on their own investment strategies and philosophy. Through enhanced disclosure into the product, they will be able to perform detailed and customized due diligence and better compare between the different green securities on the market.
 
 
What are your expectations for the next few months? 
 
We have not set quantitative metrics for our green exchange- we simply believe in the need to facilitate investment in green projects. We will all benefit from a greener tomorrow and we are proud that we are taking a leadership role. Hopefully the platform will be able to embrace green finance instruments other than green bonds, such as sustainable or social bonds, ESG funds/ETFs as standardization and reporting evolve.
 
 
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