The demand for sustainable financing has increased around the world thanks to the signing The Paris Agreement on Climate Change and the ratification of the UN Sustainable Development Goals. Efforts to tackle climate change and trends in sustainable development has become a global priority.
Watching tech stocks skyrocket, it’s easy to miss another powerful trend following the outbreak of the COVID-19 pandemic. We are talking about a record increase in assets associated with ESG. This topical abbreviation denotes companies that meet special performance criteria: E – environmental, S – social, G – managerial. That is, we are talking, relatively speaking, about business, which is associated with the moral values of our society.
Luxembourg Stock Exchange. The origin
The law establishing the Luxembourg Stock Exchange was passed on December 30, 1927. The company was incorporated as Société Anonyme de la Bourse de Luxembourg on April 5, 1928 with an initial issue of 7,000 shares, each valued at 1,000 shares. francs.
The Luxembourg Green Exchange (The Luxembourg Green Exchange, LGX), a specialized platform for the placement of securities only for those companies that comply with environmental regulations and fight global warming, was established to promote the development of sustainable financing in 2016. LGX is a unique platform that includes green and social securities as well as securities of sustainable development (green, social and sustainable securities).
The main LGX principles
In September 2016, LuxSE became the first stock exchange in the world to introduce a platform for green financial instruments – the Luxembourg Green Exchange (LGX). LGX collects issuers who channel 100% of the funds raised to green investments. Green securities must meet strict eligibility criteria, including:
- Declaring green security based on the ICMA GBP or CBI taxonomy or their equivalent. During the application process, the issuer must clearly indicate the intended environmental nature of the security.
- Use of proceeds. Clear disclosure that proceeds are used solely to fund or refinance 100% green projects in accordance with the GBP or CBI eligibility taxonomy.
- Preliminary review and preliminary reporting. The obligation of the issuer to provide both an independent external audit and factual reporting.
The Luxembourg Green Exchange strives to provide to issuers, management companies and investors a platform for access to securities, including green or social bonds and funds, as well as securities of sustainable development, taking into account the priority environmental, social and governance factors (ESG). Issuers and asset managers ensure full disclosure of information and fulfill their obligations in relation to mandatory disclosure standards. At the same time, LGX provides complete transparency of transactions, issuers can place their financial instruments and publish information regarding the use of funds received from the placement, as in the beginning, and during the entire period of circulation of securities.
The “green money” exchanges of the world
There are already a few world stock exchanges, which realized a necessity of the “green money” soft revolution and have their own ecological and social sustainability sections. Here it is with the foundation date:
- Oslo Stock Exchange (January 2015)
- Stockholm Stock Exchange (June 2015)
- London Stock Exchange (July 2015)
- Mexico Stock Exchange (August 2016)
- Italian Stock Exchange (Borsa Italiana) (March 2017)
- Shanghai Stock Exchange (March 2016)
- Taiwan Stock Exchange (Taipei Stock Exchange) (May 2017)
- Johannesburg Stock Exchange (October 2017)
- Japan Stock Exchange (Japan Exchange Group) (January 2020)
ESG industry for our bright future
The scale of the global ESG industry – the total capitalization of all companies that position themselves as environmentally and socially responsible and, what is important, can confirm this through special audit forms – now stands at more than $ 1 trillion, and this is already an absolute record. It is noteworthy that US companies in the ESG segment are not yet very widely represented. American funds focused on this topic account for only 20% of global investments. Given the scale of the US stock market, the amount invested should be at least double. This means there is good potential for further growth.