Luxembourg opens world’s first green finance exchange

72b $ is an estimated value of the green bond market this year

london — THE LUXEMBOURG STOCK EXCHANGE INTRODUCED THE WORLD’S FIRST EXCHANGE THAT WILL TRADE NOTHING BUT GREEN SECURITIES.

THE LUXEMBOURG GREEN EXCHANGE, ALSO KNOWN AS LGX, GOES LIVE ON TUESDAY. IT INTENDS TO ACT AS A GATEKEEPER FOR GREEN BONDS AND OTHER ENVIRONMENTALLY-FOCUSED FINANCIAL INSTRUMENTS TO HELP REDUCE AMBIGUITY IN THE MARKET.

IT WILL OBLIGE ITS ISSUERS TO PROVIDE “A FULL SET OF DOCUMENTATION THAT IS READILY AVAILABLE WITH PRE AND POST REPORTING,” MEANING THAT COMPANIES WILL HAVE TO DISCLOSE DETAILS ABOUT THEIR PROJECT INITIALLY AND ALSO AFTER IT IS COMPLETE, CEO ROBERT SCHARFE SAID.

“INVESTORS ARE GROWING VERY SCEPTICAL ABOUT WHETHER GREEN REALLY MEANS GREEN,” SCHARFE SAID. “SO WE FELT THAT WE NEEDED TO CREATE AN ENVIRONMENT WHERE IT IS CLEAR.”

THE GREEN BOND MARKET IS PREDICTED TO REACH ALMOST $72 BILLION THIS YEAR, UP FROM $48 BILLION IN 2015. IT IS LARGELY UNREGULATED. ISSUERS CAN CHOOSE TO FOLLOW VOLUNTARY GUIDELINES SUCH AS THE GREEN BOND PRINCIPLES OR THE CLIMATE BOND INITIATIVE, BUT THERE ARE NO MANDATORY RULES EXCEPT IN CHINA. THERE HAVE BEEN SOME INSTANCES OF FUNDS RAISED FROM CLIMATE-FRIENDLY DEBT GOING TO CONTROVERSIAL PROJECTS.

IN SPITE OF THIS, MANY INSTITUTIONAL INVESTORS WANT TO SHIFT FUNDS INTO CLIMATE-FRIENDLY INVESTMENTS, PARTICULARLY AFTER THE SUCCESS OF THE COP21 AGREEMENT IN PARIS LAST YEAR.

THE LGX IS SEEKING TO BE MORE THAN JUST A GREEN BOND EXCHANGE. SCHARFE ENVISIONS ENVIRONMENTALLY-FOCUSED EXCHANGE-TRADED FUNDS AND DEDICATED SUSTAINABILITY FUNDS LISTING. HE ALSO EXPECTS GREEN STRUCTURED PRODUCTS TO COME TO MARKET. THE EXCHANGE WILL NOT SET RULES FOR WHAT MAKES UP A GREEN SECURITY. IT PLANS TO HAVE INSTRUMENTS WITH “DIFFERENT SHADES OF GREEN” AND ALLOW INVESTORS TO CHOOSE WHAT MATCHES THEIR INTERNAL POLICIES, BASED ON THE MANDATORY LEVEL OF DISCLOSURE FOR ISSUERS.