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Categorized | Capital Markets

Luxembourg launches ‘green bond’ platform

Posted on September 27, 2016

European institutions buildings: Court of Auditors, Court of Justice, European Investment Bank and European Parliament - Luxembourg city. Photo taken on: October 17th, 2009©Dreamstime

It is getting a bit easier to be green. The world’s first ever platform for trading environmentally-friendly securities will be launched on Tuesday by the Luxembourg Stock Exchange.

It comes amid increasing interest in socially conscious investment. Morningstar estimates that the amount invested in such funds available for sale in the UK has grown 33 per cent over the past two years.

    So-called green bonds, which will be traded in a new market known as the Luxembourg Green Exchange, are meant to only raise money that is used for environmentally friendly purposes.

    However, new issuance of these bonds has been held back by the need to establish consistent standards and the added cost to borrowers of ensuring they meet them.

    “There is a need to have access to a platform that has green on the door and then behind that door everything actually is green,” said Robert Scharfe, chief executive of the Luxembourg Stock Exchange.

    Those who might sell the bonds feel uneasy, he said, given there is no standard documentation while investors face the risk of “getting greenwashed”. The idea is to have an exchange where “both parties can feel safe”, he said.

    All bonds listed on the new exchange must be self-declared as environmentally friendly, or those in which the proceeds are earmarked for green purposes and come with a means of monitoring whether these standards are met several years after the debt has been issued.

    There is a need to have access to a platform that has green on the door and then behind that door everything actually is green

    – Robert Scharfe, chief executive of the Luxembourg Stock Exchange

    The 114 green bonds with a collective value of $45bn currently listed with the Luxembourg Stock Exchange will move to the new platform.

    Green bonds are an emerging sideline for exchanges as they seek to become a more investable asset class. The London Stock Exchange Group and Oslo Bors have heavily pitched to overseas investors for business.

    The first green bond was launched in 2007 by the European Investment Bank and the World Bank. The idea of the scheme is to mobilise investment for a transition to a low carbon economy.

    Although still small, issuance has grown rapidly and 2016 will be the fourth straight year of record sales. So far $51.4bn has been sold this year, bringing the total outstanding to $142bn, according to the Climate Bond Initiative.

    The debt has the same regulatory status as other bonds. Earlier this year NTPC, the Indian energy group, listed the world’s first offshore green bond, raising $300m and handing investors a yield of 7.48 per cent.