Environmental Finance: The Luxembourg Green Exchange now displays some 1,400 sustainable bonds and 1,200 ESG fund share classes. What particular ESG data needs do your users have?
Laetitia Hamon: We have three different sets of users who need our data. Investors need very granular and structured sustainability data to make informed investment decisions, and to understand the impact of their investments. They also need to fulfil their reporting requirements as part of SFDR.
Issuers, on the other hand, need to understand what best practices in the market are when it comes to pre- and post-issuance disclosures and impact reporting. They need to be able to benchmark themselves and demonstrate transparency and clarity. That’s the key differentiator for issuers in accessing the capital market.
We also see interest from financial advisors, who are also covered by SFDR. They need to offer products to their clients that align with their specific sustainability preferences.
The challenge for these various users is that the ESG data they need is spread over different sources of data and documents, it’s presented in various formats, following different methodologies and with different levels of verification. It’s a huge data challenge.
EF: To address this problem, the exchange launched the LGX DataHub in 2020. What are its key features?
LH: What we are providing with the LGX DataHub is a centralised database, using a model that is very structured, with clear rules in terms of data collection and verification. It enables asset managers and asset owners to access structured sustainability data on more than 7,000 listed green, social, sustainability and sustainability-linked bonds, from 1,800 issuers, collected both pre and post issuance.
It enables users to filter bonds on the categories of projects financed, on bonds with second-party opinions, or which have been verified, on the contribution they make to different SDGs, or whether they are aligned to specific standards, for example. They can also find information about alignment with the draft EU Taxonomy. It has a compare function to enable users to analyse bonds against specific features.
The LGX DataHub allows users to export data to Excel, which is very useful for analysts who like to crunch data, while it also provides data feeds directly into users’ systems. In addition, it has visual features that allow users to graphically present the data in a clear and user-friendly way.
EF: Instruments and issuers on LGX need to be aligned with a recognised standard, methodology etc. How are your issuers and investors managing with the growing proliferation of such standards?
LH: I think it’s a challenge for everyone in the market. There are so many developments we all need to keep track of. It’s important to make a distinction between standards and taxonomies. We ask that securities on LGX are aligned with recognised standards – the ICMA Green Bond Principles, or the Climate Bonds Initiative certification, for example. But most taxonomies are classification systems; we don’t consider them to be standards.
In terms of explaining that to the market, we created the LGX Academy in 2020 to train financial players in sustainable finance: the basics, as well as standards, products, taxonomies, regulations etc. Also, when you go on our website, and look at a security listed on LuxSE and displayed on LGX, you can see what standard it is aligned with. The LGX DataHub offers an additional level of transparency and provides granular data in a structured form.
But it’s true; there are a lot of questions, especially among multilateral development banks. They have investors from the EU, who want reporting around the EU Taxonomy, and investors from elsewhere, who are more concerned with their local taxonomies. That’s why we advocate for as much harmonisation as possible.
As a concrete example, we recently signed an MoU with UN Women, around gender bonds. We had a lot of discussions internally as to whether to create a new section for these bonds. But, rather than further fragment the market, we instead decided to create a flag for gender-focused bonds within the social, sustainability and sustainability-linked bonds sections.
EF: What innovations and new products are you planning for the coming 18 months?
LH: For the LGX DataHub, we are planning to add an aggregation feature to allow users to aggregate the impacts of specific projects to bond level. We also plan to do more work on the EU Taxonomy, which includes incorporating and reflecting the EU Green Bond Standard and the EU Taxonomy on LGX, once they are approved and implemented. We are taking the LGX Academy digital, adding much more content, including case studies from our issuers, providing examples from the field.
In terms of products, we started to flag gender-focused bonds in May, and we have ideas and plans around green securitisation, although this is still a nascent field.
Meanwhile, the Luxembourg Stock Exchange is drawing up its strategy for the next three years. I can’t say much at this point, but sustainable finance is at the core of that strategy. It’s not only LGX that is focused on sustainable finance: sustainability is at the centre of the entire Luxembourg Stock Exchange.
For more information, see: www.bourse.lu/green.