Luxembourg launches the first Green Stock Exchange

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On Tuesday, 27th September 2016, the Luxembourg Stock Exchange (LuxSE) opened with a new platform dedicated to green financial instruments, called the « Luxembourg Green Exchange (LGX) ». It has been developed in line with best practices set out by Climate Bonds Initiative, International Capital Market Association (ICMA) and the World Wildlife Fund (WWF), the company said. This platform offers to suscribe to a limited amount of green bonds, where 114 are currently listed and represent worth over $45 billion.

100% green bonds only

This new market is based on strict eligibility criteria:

Self-labelling as a green instrument or equivalent. That means the emitter of the bonds has to show the green nature of the investment security. Use of funds raised. The funds have to be used only in order to finance or refinance 100% green projects under GPB or CBI criteria.                                                                                                                                                             « Ex-ante » review and « ex-post » reporting. The emitter has to provide an external « ex-ante » review, about their project initially, made by an independant third party. And a reporting « ex-post », which comes after the project is complete. According to Robert Scharfe, the CEO of LuxSE, all these measures were made in order to give some transparency about the way the funds are used by green bonds emitters.

Video: What is a Green Bond ?

The Green market, a duty for Luxembourg

The main goal is to fight against greenwashing: initially, there was a lack. LuxSE will oblige issuers to give some documents, with pre and post reporting for the companies. With details showing their activities before and after their project is complete. The goal is to have the insurance that all the Green Bonds are effectively 100% green and not just an argument to sell.  For instance, the access to LGX is banned for a category list comprising of, but not limited to, nuclear power production, fossil fuels, trade in CITES, animal testing for cosmetics and other non-medical products, and medical testing on endangered species. In 2007, the LuxSE became the first market in the world to list a green bond, impulsed by the European Investment Bank (EIB), it seems that the country wants to keep its leadership in the financial green area by pushing the obligations further.

The final goal: a $1000 billion market a year

Estimated by the International Energy Agency, $1 trillion is needed each year until 2050 in order to finance a transition to a low greenhouse gas emission. According to Robert Scharfe, Luxembourg is on the way to distinguish itself with this new Green Market. But he also admits that the platform was launched a little early, because a part of the green bonds don’t respect the criteria of the Luxembourg Green Exchange.

For now, green investments are still a niche market, only 10% of the 3500 billions of euros managed by the luxemburger investment fund are put into green instruments. Luxembourg is a great example of how sustainable development and finance can collaborate. Nevertheless, more effort on the green aspect of those bonds are needed for the future, to ensure a real confidence into these instruments and giving them more legitimity.

Edouard Lotz

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