When a global pandemic sweeps across the world and countries are fighting to overcome a public health emergency, all resources are mobilised towards overcoming the most burning issues. But despite the massive and potentially long-term social and economic consequences of COVID-19, a silver lining has emerged. While billions of people were confined to their homes, the natural environment flourished. When the world is brought to a standstill, waters are cleaner, air quality is better and the negative consequences of our normal lifestyle on the environment are hard to debate.
Parts of the world are now shifting their focus to the recovery from the crisis. To be successful, this recovery needs to be green and we need to focus on sustainable renovation to reduce the risk of a similar crisis and make our economies and societies more resilient. Finance must be part of the solution. Even if the lockdown period had positive effects on the environment, many expect these to be short term -- and the climate crisis is still looming.
Shining a light on the “S” in “ESG”
During the COVID-19 pandemic, social bonds were brought centre stage. The proceeds from social bonds are used to fund projects linked to healthcare, food security, social housing and education, amongst others, all areas heavily impacted by the ongoing crisis. In April and May alone, COVID-19 linked social and sustainability bonds totalling USD 19 billion were listed on our exchange and displayed on LGX, LuxSE’s leading platform entirely dedicated to sustainable securities.
Sustainable finance has come to the fore over the past years. In 2019, new green bond issuance increased by more than 50% compared to the year before. Surveys conducted by Climate Bond Initiative suggest that investors want to see more green bonds from a broader range of issuers, and that a large majority of existing green bond issuers are planning to issue other green bonds, mentioning increased visibility, a larger investment base, stakeholder engagement and catalysing new business as the main reasons for this decision. The momentum is there and the rise of sustainable finance is real. Nevertheless, a significant number of market players lack the knowledge they need to be part of the change. This is where exchanges can play an important role.
Launching the LGX Academy
In May 2020, the Luxembourg Stock Exchange launched the LGX Academy. Through this new initiative, our sustainable finance experts provide tailor-made training on a broad range of topics linked to sustainable finance to industry professionals, students and other groups.
The response from the market has been remarkable, and in itself testament to the significant need for increased knowledge in this field, a need that is largely unmet today. More than 250 participants registered for the inaugural LGX Academy webinar dedicated to Green, social and sustainability bonds in the context of COVID-19. The LGX Academy has also worked with internationally recognised institutions such as the International Finance Corporation and the University of Luxembourg to provide sustainable finance training on a national and international level.
In a first phase, the LGX Academy offers three courses covering the fundamentals of sustainable finance, the main instruments and relevant standards as well as taxonomies, reporting requirements and the process of external reviews. These core topics are flavoured with insights into current market practices and recent industry developments affecting sustainable finance. We have also made available an in-depth glossary and a resource section with relevant reports to help those interested in the field to get an initial overview of the terminology and the basic concepts.
The role of stock exchanges
As neutral market infrastructure providers, stock exchanges play a key role in promoting and facilitating the sustainable finance agenda. One of the missions of an exchange is to ensure investor protection and this starts with raising awareness and education.
We established the LGX Academy because more education will be needed to increase the market’s understanding of sustainable finance, which again is essential for the market to grow. The LGX Academy allows participants to enrich their knowledge in this field and gain a deeper understanding of sustainable finance market practices. The overall goal is to promote inclusive investment products and help direct future capital flows towards sustainable investment projects.
Financial literacy is key to making finance sustainable by default. To borrow a quote from Nelson Mandela: "Education is the most powerful weapon which you can use to change the world."