By Funds Society, Miami
The Luxembourg Stock Exchange (LuxSE) was the first stock exchange in the world to introduce a platform for green financial instruments. The so-called Luxembourg Green Exchange (LGX) started yesterday Tuesday. Access is limited to issuers that meet strict selection criteria. The platform aims to set a new benchmark for the green equity market, now rapidly evolving.
"There is a real will for change. The green market has enormous potential, but it must be accompanied by investor interest. By setting high standards for green securities, LGX aims to create an environment where the market can thrive," he stated Robert Scharfe, CEO of LuxSE "With LGX, a platform dedicated to issuers and investors, we are guaranteeing the solution for financing green projects."
Only 100% green
LGX brings together issuers who dedicate 100% of the financing obtained to green investments and will immediately become the home of the majority of the 114 green bonds that appear on LuxSE, totaling a value of more than 45,000 million.
It is the first time that a stock exchange requires strict selection criteria for green securities to adhere to it, including self-labeling as green or equivalent, that 100% of the proceeds go to financing or refinancing green projects, and a previous analysis and subsequent report. "Ex-post reporting is far from the market standard. The courageous decision to introduce it as an entry requirement responds to our ambition to be able to ensure that the securities in LGX are truly green. Such confirmation is what investors are looking for, as they increasingly expect issuers to be clearer about the utilization of profits, "adds the CEO.
Access to LGX is prohibited for titles of –at least- the following categories: nuclear energy production; trade in species protected by CITES; animal testing for cosmetics and other non-medical products; medical tests in endangered species; or fossil fuels.
With over $ 42 billion in new issuance globally, 2015 was another record year for so-called “green” bonds. According to estimates by the Climate Bonds Initiative, in 2016 the issuance of green bonds will reach 100,000 million. The already flourishing green bond sector received an additional boost after the COP21 conference in Paris last year, during which 195 countries agreed to keep the global temperature rise below 2 degrees Celsius. The International Energy Agency estimates that the world needs $ 1 trillion a year through 2050 to finance the transition to low emissions. The green finance market is growing rapidly, and yet it represents an almost invisible fraction of total capital market funding.