'Our role in the transition goes beyond labelled bonds'

06 March 2023

Luxembourg Stock Exchange has a role to play in providing transparency on net zero plans, its CEO Julie Becker tells Peter Cripps

The Luxembourg Stock Exchange (LuxSE) has a key role to play in helping to advance sustainable finance, its CEO said, and its activities must go beyond its pioneering 'green exchange'.

Julie Becker – who became the exchange's first female CEO in April 2021, but was previously the head of LGX, its award-winning green exchange – said her vision is for the firm to "become a leading sustainable finance and information solution provider for capital markets".

She described LGX as a success, as it hosts some 3,100 securities, and has helped make Luxembourg the leading hub for green, social and sustainability (GSS) bonds, which represented almost 20% of the value of all new bonds listed on LuxSE in the course of 2022.

LGX has won the title of Exchange of the Year in Environmental Finance's Green Bond Awards for five years in a row.

While she predicted that the number of GSS bonds "will only grow", she added that LuxSE has a broader role to play in the transition to a sustainable economy, including helping to boost transparency and educate the market about sustainability issues.

"Stock exchanges have a key role to play in making sustainable finance mainstream and accelerating the transition and transformation of finance," she told Environmental Finance. "I said a few years ago that finance will become sustainable by default. We are still not there, but I am still convinced of the [importance of the] ultimate objective.

"[LuxSE is] a meeting point [between issuers and investors], making sure we can facilitate access to finance and reorient capital flows in the right direction. But we also have a role to protect investors and we can do so by educating them and making sure accurate and up-to-date data are made available to them to make informed investment decisions.

"Sustainable finance is not limited to LGX, it is a company-wide topic, embedded in everything we do."

LGX in figures:

LGX claims to display a leading share of the world's listed, sustainable bonds as well as funds and bonds from climate-aligned issuers.

These include:

  • 1,600 labelled bonds;
  • 1,400 share classes; and
  • 150 non labelled bonds issued by 'climate-aligned' issuers.

LGX saw €206.6 billion of issues in 2022, a slight decrease against €246 billion in 2021, reflecting market conditions.
Overall, there were 3,100 securities displayed on LGX at the end of 2022.

Issuers issuing and listing conventional bonds on LuxSE are currently not required to disclose their net zero transition plans, explains Becker.

"However, given the crucial role that exchanges play in decarbonising the world economy, we are currently structuring our thinking and our approach on this topic to find the best way to encourage and accompany issuers to innovate and accelerate their transition – and thereby keep and strengthen the trust of investors, who are increasingly taking into account climate risks and other emerging risk scenarios."

Although the discussion within the exchange is still at the "early stages", she says it can help issuers of all types "to be aware of their impact on the environment and that they have to shift their business model" to a net zero trajectory, she argues.

"That's the responsibility, if not the duty, of an exchange. Otherwise, in 30 years [some companies] will not exist any more.

"They need to shift. We cannot oblige them, but we have the responsibility to make them aware and to encourage them.

"The complexity around the transition is to ensure enough transparency for investors to understand that some companies cannot be clean or net zero. However, it's very important to make sure issuers ... assess where they stand, define a strategy, define targets – of course, the targets must be ambitious enough – and stick to the targets.

Limiting the access of polluting companies to finance risks creating "shadow capital markets", meaning that the activities would "continue in the dark"

"And, as long as this is transparent, this is fine for us – we do not ask any oil and gas companies to be carbon-neutral by 2025, as it's not possible, but they should define a transition strategy, a path to net zero and set targets that are transparent."

But she refutes the suggestion that the exchange may today refuse to list securities from issuers that are failing to demonstrate they can shift their business models in line with a net zero economy. She believes this would limit their access to finance and create "shadow capital markets", meaning that the activities would "continue in the dark".

Instead, she "recommends to impose sustainability strategy disclosure".

Some of these disclosures will be required under forthcoming EU regulations, she points out.

"For green bond issuers, depending on how the EU Green Bond Standard will be adopted, they will have to disclose their sustainability strategy and green bond framework," she says. "For plain vanilla issuers, if they are listed, they will have to comply with the Corporate Sustainability Reporting Directive (CSRD), and for some the Sustainable Finance Disclosure Regulation (SFDR).

"There are lots of regulations that oblige them to disclose their sustainability strategy."

Timeline of developments for LGX

  • 2016: LGX launched, for green bonds
  • 2017: Expanded to cover social and sustainability bonds
  • 2018: Expanded to cover sustainable funds
  • 2020: Expanded to cover climate-aligned issuers and sustainability-linked bonds
  • 2021: Fund listings were revamped to reflect the categories of the EU's Sustainable Finance Disclosure Regulation.
  • May 2022: Gender-focused bonds were flagged after the exchange signed a memorandum of understanding with UN Women to promote gender finance.

As part of this drive for transparency, Becker reveals the exchange is set to update its X Principles of corporate governance, which apply to all companies with equity listed on the exchange, requiring them to report annually to the exchange on a comply-or-explain basis.

She expects the principles to be updated in coming weeks to "make clear reference to climate-related disclosures, and human rights principles".

Yet she accepts that stock exchanges run the risk of deterring issuers if they demand too much information, adding that the role of exchanges is to help them to "get finance to shift their business models".

"That's our role, to make sure transition plans are made [transparently] and that investors can trust them.

"The [plans] will be available on stock exchanges – all market infrastructure should go in that direction."

The exchange provides data on GSSS bonds through its LGX DataHub, and is also beginning to branch out into the broader ESG data arena, after in November it took a stake in London-based artificial intelligence-based data firm Util.

She said Util's data, which helps companies understand whether they positively or negatively impact the UN Sustainable Development Goals (SDGs), "will help us to guide plain vanilla issuers to comply with a net zero strategy. They first need to know where they stand today."

However, LuxSE has no plans to make this data publicly available. "We want to work hand-in-hand with issuers and encourage them on the right path and not to discourage them by making public negative contributions to SDGs if they don't want yet to disclose them.

"As long as we engage with them and make sure we encourage and support them in the right direction, that's the objective.


Putting gender investing on the agenda

One of Julie Becker's key priorities is a focus on gender investing, which she describes as "a megatrend we strongly support".

In May 2022, LGX began to flag 'gender-focused' bonds to make them more easily visible to investors, after signing a memorandum of understanding with UN Women to promote gender finance.

"Gender equality is very important to me – empowering women, and making sure we are putting gender investing on the agenda, starting locally but also globally," she said.

When asked whether she took pride in her position as the exchange's first female CEO, she said:

"Lots of women are complaining about not having any role models in financial services. It's a source of pride when I hear women saying they are proud of me being the concrete illustration that you can make it.

"It gives trust and hope ... to a new, younger female generation that we will not have only financial institutions managed by men."