We have celebrated many important milestones at the Luxembourg Stock Exchange over the years but the one we marked in May is particularly meaningful. Our Luxembourg Green Exchange (LGX), the world’s first and leading platform fully dedicated to sustainable securities, welcomed the 1,000th sustainable bond currently displayed on LGX; a USD1.5 billion Global Climate Awareness Bond issued by another pioneer in sustainable finance, the European Investment Bank.
LGX has reached this landmark of 1,000 green, social, sustainability and sustainability-linked bonds within five years of its launch. Combined, these bonds have raised more than EUR500 billion for specific green and social projects, supporting sustainable development across the world in areas like renewable energy, low-carbon transport, biodiversity, food security, healthcare, and affordable housing, to mention but a few examples.
Behind these bonds are 180 issuers from 40 different countries, representing an array of sectors and industries. This reach and scale exceed even the most optimistic expectations we had back in 2016, when we committed to advancing the sustainable finance agenda by establishing LGX.
The Luxembourg Stock Exchange has been active in sustainable finance ever since the European Investment Bank issued and brought to our exchange what is known as the world’s first green bond in 2007.
The World Bank followed suit the following year. These and other factors helped us understand early on that finance needed to become part of the solution to global challenges such as climate change, and that sustainability had to become a natural part of finance.
When the United Nations Sustainable Development Goals and the Paris Agreement on Climate Change defined the landmark global objectives in 2015, we decided to contribute. In 2016, we established LGX and focused our efforts on reorienting capital flows towards sustainable investment projects. Through LGX, we help unlock sustainable capital, facilitate sustainable investment, and contribute to accelerating the necessary transition to a low-carbon and more inclusive economy.
At first, and as the name reveals, LGX was a platform exclusively dedicated to green bonds. Sustainable finance evolved fast, and the market with it, so we expanded the scope to include social and sustainability bonds in 2017. The following year, we added green, social, and ESG funds. Last year, we opened our platform for the latest addition to the sustainable debt sphere, sustainability-linked bonds.
This rapid growth in scope and product range illustrates how we adapt the platform to reflect and support market developments. It is interesting to note that of the 1,000 sustainable bonds currently displayed on LGX, 55% are green bonds. However, if we look at the amount raised through the 1,000 bonds included on the platform, green bonds now account for 44% of the EUR500 billion raised. This reflects the increasing popularity of social, sustainability, and sustainability-linked bonds.
The pandemic brought the social dimension to the fore and led to a steep uptick in social bond issuances. As an illustration, new social bond listings on our exchange increased by more than 1,000% in 2020, compared with 2019. Among the social bonds displayed on LGX in 2020 were those issued under the EU SURE programme, which raises financing to protect jobs and workers across Europe. As of June 2021, the European Commission had raised EUR89 billion under EU SURE.
A more holistic view
Investors are increasingly shifting their focus from a specific green or social project to the issuer’s overall ESG profile, sustainability strategy, and transition plan. Addressing this point, we established the Climate Bonds-LGX Climate-Aligned Issuers (CAI) section on LGX earlier this year.
This new section complements the existing product section dedicated to sustainable bonds, and features companies that derive at least 75% of their revenues from climate-aligned activities. It also enables investors to identify untapped opportunities in the wider climate-aligned investment universe, beyond labelled bonds.
Issuers included in the CAI section are identified by the Climate Bonds Initiative through an in-depth screening process, research, and a detailed analysis of revenue streams, business activities and outstanding debt, and furthermore list their securities on our exchange.
Despite the global pandemic that caused a public health emergency and wreaked havoc on the economy last year, 2020 was pivotal for LGX. We developed solutions to some of the main barriers to sustainable finance, namely access to education and structured sustainability data.
In May last year, we established the LGX Academy, where our sustainable finance experts provide courses to financial professionals and students. The LGX Academy helps participants increase their knowledge of sustainable finance principles, standards and labels, products, applicable regulation, and best market practices. Our lecturers provide practical case studies and examples from the market, enabling participants to understand the impact on their daily business.
In September, we launched the LGX DataHub, which is a unique, centralised database of structured sustainability data now covering more than 3,200 sustainable bonds, which is close to the entire universe of listed sustainable debt securities worldwide.
The LGX DataHub makes it possible for investors and asset managers to fully understand and compare the social or environmental impact of different securities and provides them with the data they need to build sustainable investment strategies and report on these investments.
Finally, in November, we launched the Solactive LGX Green Bond Impact Index, which provides investors with a meaningful benchmark on green bonds that they can use to track performance.
From billions to trillions
Finance needs to be part of the solution to our global challenges. If we are to reach the global goals and solve the climate crisis, massive amounts of capital will be needed. There is no other way: capital markets must become sustainable by default and support the real economy.
Exchanges have a crucial role to play in this context and we should all work together, across borders, to accelerate the transition to a low-carbon and more inclusive economy. For the Luxembourg Stock Exchange and LGX, the 1,000 sustainable bonds milestone is only the beginning of an ambitious and meaningful journey, which I hope we will all take together – beyond borders and across continents.