Green, Social and Sustainable Bonds
One of the most successful ways to raise money to tackle climate change is through international capital markets. Governments and private entities regularly issue debt securities in the form of bonds to finance their projects. When such projects are linked to wider sustainable or social development, they are known as sustainable development bonds.
The most popular instruments are green bonds. Green bonds are fixed income instruments that raise money for activities with a climate-linked or environmental benefit. They have a strong potential for growth, as raising capital through green bonds is a versatile instrument for issuers and can be easily understood by investors.
Luxembourg is a pioneer in and the global hub for green bonds. In 2007, the Luxembourg Stock Exchange (LuxSE) listed the world’s first green bond, issued by the Luxembourg-headquartered European Investment Bank (EIB). In 2016, building on its traditional activities, the LuxSE launched the Luxembourg Green Exchange (LGX), the first platform worldwide to list exclusively green bonds. It has since then been expanded to list Social and Sustainable securities.
Securities displayed on the LGX have to comply with strict eligibility criteria, including labelling, the use of proceeds, and most importantly ex-ante review and ex-post reporting, the latter currently not being the market standard. The decision to introduce ex-post reporting as an entry requirement guarantees that securities on the LGX are genuinely green.
Today, over 50% of all green bonds are listed in Luxembourg, making it the Green Bond capital of the world. Thanks to LGX, the Luxembourg Stock Exchange provides issuers and investors with an environment where they can come together to fulfill their green objectives.
A growing number of investors are also incorporating ESG principles into their investment strategies. This new development has led to significant interest in social and sustainable bond issuance. Thus, soon after the launch, the LGX also opened to social and sustainable (S&S) bonds.