One of the most widely used ways to raise money to tackle climate change is through international capital markets. The green bond sector is still young, and the overall volume of the labelled universe remains just a fraction of what is required to make a substantial impact in the fight against climate change.
The turning point in green bond market growth followed a significant increase in the number of corporate green bonds in 2013. By 2016, green bond issuance had reached $171bn and is forecast to rise to $350bn5 in 2020.
Poland issued the first sovereign green bond in 2016 and decided to list it on the Luxembourg Stock Exchange. Today dozens of other international, supranational, national, as well as regional governments and government organisations list sustainable bonds in Luxembourg.
The Luxembourg Green Exchange: the world’s first green-dedicated exchange
In 2016, the Luxembourg Stock Exchange launched a platform dedicated to green financial instruments – the Luxembourg Green Exchange (LGX), the only such platform of its kind worldwide, where issuers and investors can come together to fulfil their green objectives.
The world’s first green bond was issued by the European Investment Bank in 2007 and listed on the Luxembourg Stock Exchange. Green bonds have since been adopted in markets worldwide.
In 2016, the LGX opened a new segment dedicated to the listing of social and sustainable projects, an industry estimated to be worth $31 trillion globally.
When the proceeds from an instrument are used exclusively to finance or refinance social and sustainable projects, the bond or fund will be displayed on LGX as a social security.
The LGX social and sustainable window enhances the visibility of social and sustainable projects so that investors can take informed decisions. The listing process is similar to that of green bonds: once a Social or Sustainable bond is listed on the Luxembourg Stock Exchange, an issuer can apply for LGX display. The issuers must commit to disclosing detailed information relating to the planned use of the proceeds and provide an ex-ante external review, as well as a post-issuance report presented at regular intervals throughout the lifespan of the security.
The first social bond to be displayed on the LGX since the launch of the dedicated window was a €300mn issue by the Austrian issuer Kommunalkredit to finance education, healthcare and social housing.
Connecting the world’s largest green bond exchanges
Luxembourg is a gateway for Chinese issuers to tap European markets. For example, Bank of China was the first Chinese issuer to choose Luxembourg to list its pioneer multi-tranche, multi-currency green bond.
Furthermore, in 2017 the Luxembourg Stock Exchange (LuxSE) partnered up with two of the most important Chinese Stock Exchanges, the Shenzhen Stock Exchange (SZSE) and the Shanghai Stock Exchange (SSE). These partnerships helped launch the green bond index series, which provides the first synchronous display of quotes for green bonds listed in China and Europe, the world’s two largest green bond markets.The Green Bond Index Series (LuxSE & SZSE), the SSE Green Corporate Bond Index (LuxSE & SSE), and the SSE Green Bond Index (LuxSE & SSE) now act as market benchmarks and investment tools bridging the gap between Europe and China.
In 2018, the LuxSE launched a Green Bond Channel in partnership with the Shanghai Stock Exchange (SSE), focusing on providing key information in English on Chinese green bonds to offshore investors.
Green Bond Criteria
In July 2018, Luxembourg established the world’s first legal framework for green covered bonds, a new type of covered bond to finance the generation of renewable energy. This is the first such legislation introduced anywhere in the world and underlines the country’s determination to driving forward global innovation in sustainable finance.