Today’s event focuses on a key area that is at the heart of Luxembourg Stock Exchange’s daily action – the role of finance in empowering innovative investment in sustainability and inclusive growth.
Luxembourg Green Exchange：
How Luxembourg Has Used Sustainable Investment to Fuel Inclusive Growth
In 2016, the Luxembourg Stock Exchange became the first exchange in the world to launch a platform exclusively dedicated to sustainable securities, which we called the Luxembourg Green Exchange or LGX. Since then, the Luxembourg Green Exchange has become the undisputed leader of reorienting capital flows towards sustainable investments through the world. Facilitating sustainable investments that finance a low-carbon and more inclusive world form the core of our mission with LGX. This is something that was recognised by the United Nations during its 2020 Climate Actions Awards when LGX was recognised for its role in accelerating financing for climate friendly investment. This would not have been possible without the help of our international counterparts, many of whom, I am proud to say come from the Greater China region. As the premier listing venue for international bonds, the Luxembourg Stock Exchange has been working very closely with Chinese issuers for several years to facilitate their access to international capital markets and investors. And this cooperation with China has naturally expanded into the field of sustainable finance. Many successful joint initiatives with our Chinese partners have been developed in recent years, notably in the fields of listing, information dissemination and indexes. And they all capture the power that the finance industry has to propel innovative sustainable investment opportunities that drive inclusive growth.
Given the Luxembourg Stock Exchange’s close ties with our Chinese counterparts, it was with great pleasure that I read of the release of China’s Green Bond Principles in July 2022. International consistency and market usability are key to progress in our common mission to make finance more sustainable and transparent, and that is the reason why we welcome and applaud all harmonisation efforts undertaken by Europe and China – some of which are clearly seen in these Green Bond Principles through its references to and alignment with ICMA’s Green Bond Principles. Importantly, China’s new Green Bond Principles require 100% of the proceeds raised to be used on eligible green projects – and this is a remarkable development and essential to protect the integrity of the green bond market in China.
But sustainable finance is about more than just green. Since the European Investment Bank listed what is widely considered the world’s first green bond on the Luxembourg Stock Exchange in 2007, the industry has rapidly evolved. In its essence, sustainable finance has undergone a remarkable period of innovation. The securities available in the market have become more and more innovative. Thus, bringing more and more sustainable investment opportunities to light. Volumes of new sustainable securities keep growing and represent an increasing proportion of total debt issuances. We are seeing issuers from new industries emerge almost every day. And we are seeing impact-conscious investors dig deeper and deeper into what exactly makes up their sustainable investments.
Let me give you an example of an innovative sustainable investment opportunity that we saw first-hand at the Luxembourg Stock Exchange. In September 2020, the Grand-Duchy of Luxembourg became the first sovereign in Europe to issue a sustainability bond – a bond which is listed on the Luxembourg Stock Exchange and displayed on the Luxembourg Green Exchange. As the world was still coming to terms with the devastating effects of the COVID-19 pandemic, Luxembourg knew that innovative action needed to be taken without delay. To make the issuance of this bond a reality, the Grand-Duchy created the first Sustainability Bond Framework established by a European country and aligned with the highest international standards in the field of sustainable finance. Almost 2 years on, and according to its first sustainability bond report, the inclusive growth that this bond finances for the people of Luxembourg is evident. The EUR 1.5 billion bond covers at least 65 projects in 7 different sectors including
- Clean transportation: Cutting nearly 300,000 tons of CO2 emissions as a result of a modal shift in passenger transport
- Education: Increasing student capacity by nearly 7,000 schoolchildren and students
- Supporting 13 social inclusion projects, to name just a few
I mention this because the Luxembourg Stock Exchange, the Luxembourg Green Exchange and Luxembourg as a country can be used as examples of how innovation should be embraced in order to secure a low-carbon and more inclusive world. In fact, innovation is a key component in making economies more resilient and sustainable. Innovation creates a better customer experience and boosts the attractiveness of these innovative markets to the international investor community – thus securing more inclusive growth for all members of society.
What Benefits Innovation and Investment in Sustainable Finance Has on China’s Footprint in International Capital Markets
Today, China hosts the second largest bond market in the world. International investors are following its development closely, constantly looking for opportunities to enter this promising market. This is where the opportunity to innovate, diversify, and grow issuances as well as portfolios lie.
Here, I draw on China Merchant Bank as an example of this innovation in action. In September 2021, China Merchant Bank brought its landmark dual-tranche bond to the market. The bond, made up of a carbon neutrality-themed bond and sustainability bond was pioneering. It used innovation to put itself at the forefront of Chinese green finance and bring forward a unique opportunity for international investors. This issuance marked the first explicitly defined carbon neutral bond issued by a Chinese bank on international capital markets in Europe.
This issuance also brought the first sustainability bond using a secured overnight financial rate linked floating rate by a Chinese bank in Europe. By issuing this dual-tranche bond, China Merchant Bank became a pioneer and showed its commitment to China’s goal of achieving carbon neutrality by 2060. By doing that, they also unlocked a new and innovative opportunity for investors.
The modern finance industry must be an industry of innovation and inclusion – uniting issuers from one side of the world with investors on the other. All with the shared goal of using sustainable investment to secure inclusive growth for all. Remember that inclusive growth means that no one gets left behind and that everyone has the opportunity to contribute to sustainability whenever and wherever possible. As we work hard together to progress the world towards greater sustainability and inclusion, let us make sure that we keep innovation at the front of our minds. Because prioritising innovation today, holds the key to unlocking sustainable post-crisis growth.
CEO of the Luxembourg Stock Exchange
Founder of Luxembourg Green Exchange