Taking stock: The past and present of the Luxembourg Green Exchange

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When green bonds were emerging as a new way to invest in sustainability projects, yet no one quite knew how to approach them – what qualifies a project as ‘green,’ and how can you be sure it adheres in practice to what’s on paper? – Julie Becker stepped in to set the standards straight and get the money flowing.

In 2016 within the Luxembourg Stock Exchange, Becker established the Luxembourg Green Exchange, a platform entirely dedicated to sustainability-focused financial instruments such as bonds and funds. And by detailing a rigorous process for qualifying these instruments as sustainable, the Exchange in essence did the heavy lifting for investors looking to put their money to good planetary use but unsure of how to do so.

Then, it was the first platform of its kind in the world; now, it still holds 50 percent of all listed green, social and sustainability bonds globally. As the sector continues to grow, encompassing socially responsible investment (SRI) funds in addition to bonds, Becker here took a moment to reflect on the Exchange’s own development.

This interview has been edited for clarity.

Why were you driven to create the Luxembourg Green Exchange?

We created the Luxembourg Green Exchange as a response to the Paris Agreement in 2016 and as a response also to the U.N. Sustainable Development Goals. Our objective was to unlock sustainable capital and to help redirect sustainable capital toward sustainable investment projects.

The Luxembourg Green Exchange is the world’s first platform entirely dedicated to sustainable finance instruments. We started with green bonds and then we extended the platform to social and sustainability bonds. Last year, we also extended the platform for SRI funds as a response to the growing demand in the market.

The Luxembourg Green Exchange was launched as the only stock exchange of its kind in the world. What have been reactions from other actors in this sector?

Well, overall the reaction was extremely positive when we launched the Green Exchange. Today we display more than 550 securities for an amount of approximately 200 billion Euros.

Securities are issued by more than 100 issuers coming from 30 countries in the world, so it’s a very international exchange. And we have a 50 percent market share of listed green, social and sustainability bonds. So, I think that overall it has been a massive success.

Over the last few years, we also have contributed to closer cooperation with other exchanges in Latin America, in China and also in Africa to support the green finance agenda and promote sustainable development at the domestic and international levels.

What lessons have you learned since its inception?

If I would have to highlight one aspect it would certainly be the question of balance. When we launched the Exchange, we decided to make voluntary guidelines and best market practice mandatory for green bonds to be displayed on our green platform. We wanted to ensure the environmental integrity of those securities.

But at the same time, we realize that it’s quite costly, and it takes time. So for some issuers – especially smaller issuers like corporates – it might be dissuasive to join the platform and onboard this green finance agenda. So, it’s very important to find the right balance between ensuring the integrity and avoiding burdensome and costly processes to make sure that sustainable finance will become mainstream.

Do you think the economic incentives for sustainable investment are strong enough to attract investors, or must values be a part of their motivation as well?  

I think that today, investors want to know where their money is going, and they want to be sure that their investments will have an impact on future generations. So what is really important is to understand well that sustainable investing is not contradictory to a financial return, but it’s in addition to a financial return that investors will get an impact on society overall.

So returns of sustainable funds are aligned with traditional funds, if not better, especially because they are much less affected by market volatility.

What sorts of reporting and accountability mechanisms are in place to ensure projects are truly ‘green’?

When issuers issue a green bond, they need to commit to transparency and to follow a series of requirements. And so, when we analyze if a security is eligible for display on our green platform, we check whether voluntary process guidelines such as the Green Bond Principles from the International Capital Market Association are complied with. What we are requesting from issuers is to provide us with an external review and to meet with some requirements like the use of proceeds, disclosure rules and a commitment to ongoing reporting. We are convinced that this ongoing reporting is extremely important for investors to make sure that issuers deliver on their commitments.

In your career in finance, how have you seen mindsets in the sector change toward sustainable investment?

Well I think that so far sustainable finance has been a niche, but it’s more and more becoming mainstream. I’m convinced that sustainable finance will be the new norm and that finance will be sustainable by default.

I am also convinced that, in the future, company profiling will be mandatory. Investors will want to invest not only in a green side-project but will want to know more about the overall sustainability strategy of the issuer. And we will require them to disclose that about this strategy.

What landscape is most precious to you?

I love both the mountains and the sea. But maybe more than a specific landscape, what I really like are strong sensations. I like to feel the wind when I go skiing. I like the immensity of oceans when I go sailing, the waves that hit the sand. And what I feel are really precious are the moments when you are filled with this notion of nature, which is so much bigger than us. That makes me feel alive.