Strengthening the sustainable finance agenda
Environmental Finance speaks with Julie Becker, deputy CEO of the Luxembourg Stock Exchange (LuxSE) and founder of the Luxembourg Green Exchange (LGX), to discuss the latest innovations that are being implemented at the bourse.
Environmental Finance: How have recent market developments influenced the initiatives you are undertaking at LGX?
Julie Becker: At the Luxembourg Stock Exchange, we have followed the sustainable finance market since it first emerged as a concept. We realised early on that finance needed to play an essential role in the solutions to our global challenges, and that sustainability had to become a natural part of finance and capital markets. Since establishing the Luxembourg Green Exchange, or LGX, in 2016, we have actively promoted the sustainable finance agenda by facilitating investments with positive environmental or social outcomes.
We have also contributed to shaping the EU framework on Sustainable Finance and actively supported new market developments to satisfy investor demand and encourage issuers to accelerate their transition and contribute to a low-carbon and more inclusive economy. Sustainability-linked bonds are one example of this.
We extended the LGX platform to include sustainability-linked bonds last year, when ICMA published its Sustainability-Linked Bond Principles. Another example is the new issuer section on LGX dedicated to Climate-Aligned Issuers, which we added earlier this year. While the product section on LGX is dedicated to labelled bonds, the Climate Bonds-LGX Climate-Aligned Issuers section takes into account companies' overall business activities and revenue streams, and features companies that derive at least 75% of their revenues from environmentally friendly activities.
This initiative was made possible thanks to our partnership with Climate Bonds Initiative, who is responsible for the analysis and screening of the issuers' revenues, debt and activities. The goal is to highlight untapped opportunities in the broader sustainable investment universe and broaden the scope of sustainable finance products beyond labelled bonds.
EF: What key innovations are driving the evolution of LGX?
JB: Over the past year, we have gone beyond our core activities as an exchange to contribute to the growth of sustainable finance. We identified two main barriers, namely lack of education and awareness, and access to meaningful and structured data, and we decided to address these issues.
In May 2020, we established the LGX Academy where our sustainable finance experts provide tailor-made courses on sustainable finance principles, products and labels, as well as applicable regulation and best market practices to financial professionals. There is still a considerable lack of knowledge and understanding of what sustainable finance is and, what it involves, among market participants. We would like to help close this gap.
Then in September 2020, we established the LGX DataHub, a unique and centralised database of structured sustainability data, which now covers more than 3,000 green, social and sustainability bonds — close to the entire universe of listed, sustainable debt instruments worldwide. With up to 150 data points per security, the LGX DataHub provides investors and asset managers with the pre- and post-issuance data they need to build sustainable investment strategies and report on these investments.
By increasing financial literacy, focusing on knowledge sharing and facilitating access to structured and meaningful sustainability data, we help sustainable finance to grow and move from niche to mainstream.
EF: What are your strategic priorities for 2021?
JB: This year, we will further develop the LGX Academy and expand the LGX DataHub. We have invested in a promising start-up Tetrao, which helps us collect vast amounts of data points with artificial intelligence-based technology. We are also exploring other ways to capitalise on sustainability data, because data is crucial in establishing science-based targets and measuring social and environmental impact and progress.
We are also following the developments around transition finance very closely and we are analysing how to best support new products, like transition bonds, on LGX. Transition finance will be essential in accelerating transition efforts across different sectors and we are contributing to the ongoing market discussions in different working groups.
The global pandemic increased the focus on sustainability and brought environmental, social and governance (ESG) issues centre stage. With the growing scrutiny placed on issuers' overall sustainability strategies and ESG profiles, we are also looking into how we can support market participants in this field, as we are convinced that access to capital markets may soon be preconditioned by a complete and credible ESG profile of issuers.
EF: You have won Exchange of the year in the Environmental Finance Bond Awards. To what do you attribute your success?
JB: First and foremost, I would attribute the success to the relentless commitment and determination of our teams, who are driven by a clear sense of purpose. Even in the challenging year 2020, we followed through with our planned sustainable finance developments, and this is a real achievement.
As an exchange, we are a service provider to capital markets and we have a responsibility to help shape better capital markets where impact and purpose matter, and where finance supports the real economy and contributes positively to society.
We are extremely proud to have been granted the Exchange of the year award for five consecutive years. This recognition shows that we have set the right priorities, and it serves as a tremendous motivation for our teams to continue on our mission to make capital markets more sustainable!