Luxembourg Green Exchange (LGX) opens today to issuers that dedicate 100 per cent of raised funding to green investments
The Luxembourg Stock Exchange (LuxSE) today launched the world's first platform for green financial instruments, which limits access to issuers that comply with stringent environmental criteria.
Live from today, the Luxembourg Green Exchange (LGX) is aimed at setting "a new benchmark for the rapidly evolving green securities market", according to LuxSE.
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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.
In order to access the LGX, issuers must dedicate 100 per cent of their raised funding to green investments. The platform is expected to immediately become home to the majority of the 114 green bonds - worth a total of $45bn - currently listed on LuxSE.
Access to LGX is also banned for securities on an excluded categories 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.
Other green eligibility requirements for the LGX include the need for an issuer to self-label as green or climate-aligned by clearly stating during the application process the environmental nature of the security.
In addition, issuers must clearly disclose that proceeds are exclusively used for financing projects that are 100 per cent green, according to Green Bonds Principles (GBP) or Climate Bonds Initiative criteria.
Issuers must also make a commitment to providing both independent external review and ex-post reporting, which LuxSE described as an "unprecedented" requirement on the market.
"Ex-post reporting is far from being the market standard," said Robert Scharfe, CEO of LuxSE. "The bold decision to introduce it as an entry requirement stems from our ambition to be able to guarantee that securities on LGX are genuinely green. Such reassurance is what investors seek as they increasingly expect issuers to be crystal clear about the use of proceeds."
The green finance market has grown rapidly and 2015 was another record year for labelled green bonds, with over $42bn in new issuances globally. Issuances are expected to reach $100bn by the end of this year, although the International Energy Agency estimates the world needs $1tr a year until 2050 in order to finance the transition to a low carbon economy.
Robert Scharfe, CEO of LuxSE, said new issuance of green securities had especially taken off since the COP21 climate summit and Paris Agreement last year, which had prompted a "real desire for change".
"The green market has enormous potential but this needs to be matched by interest from investors," said Scharfe. "By setting strict standards for green securities, LGX aims to create an environment where the market can prosper. The upcoming COP22 event will focus on preparations for the Paris Agreement to enter into force. With LGX, a dedicated platform for both issuers and investors, we are granting the solution for financing green projects."
The move follows the vow from G20 leaders earlier this month to scale up green financing in pursuit of a "cleaner energy future and sustainable energy security". Meanwhile, Bank of England Governor Mark Carney also last week said green finance could "help resolve the tragedy on the horizon".
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