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Luxembourg exchange becomes international leader for green securities

April 2017 - Finance. Legal Developments by Chevalier & Sciales .

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Since the autumn of 2016, the Luxembourg Stock Exchange has operated the first listing and trading platform worldwide reserved exclusively for environment-focused financial instruments. The Luxembourg Green Exchange (LGX) provides access to securities from a broad range of issuers that are recognised globally as authentically green and offers enhanced information about their environmental characteristics.

The LGX has not replaced the existing Luxembourg markets, but is a dedicated platform complementing the Luxembourg Stock Exchange main market and Euro MTF market. There are no additional costs involved in listing on the LGX, except any related to additional reporting – the market requires issuers to undertake ongoing reporting after a security has been issued. The LGX follows industry best practice, notably the ICMA’s Green Bond Principles and the Climate Bonds Standards issued by the Climate Bonds Initiative.

Green bonds are financial instruments issued to raise capital for projects with positive environmental or climate benefits, and their proceeds are typically backed by the entire balance sheet of the issuer. In addition to green bonds, the LGX may in the future accept other types of financial instrument.

To access the Luxembourg Green Exchange, issuers are required to list on one of the Luxembourg Stock Exchange regulated markets, declare their security to be green, disclose the use of the proceeds, provide an external review, and commit to regular ongoing reporting. Existing issuers may move their securities to the LGX providing they meet all the criteria.

The regime imposed by the LGX and the strict entry requirements enable investors to assess the environmental impact of their investments and enjoy the comfort of knowing they are investing in a credible green bond.

The green bond market is developing rapidly and is set to accelerate further following the 2015 United Nations Climate Change Conference in Paris. LGX issuance is currently dominated by large financial institutions such as the European Investment Bank, the world’s leading issuer of green bonds, Germany’s publicly-owned development bank Kreditanstalt für Wiederaufbau, and Bank of China, which became the country’s first institution to launch a green bond in Europe when its $2.8bn instrument was listed on the LGX. However, more private issuers are expected to join the market in the near future as the market builds a solid market framework for green bonds.

Should you require legal assistance in relation to green financial instruments and listing on the LGX, please do not hesitate to contact our law firm.