The world’s first green stock exchange for ethical investors has opened for business in Luxembourg.
The Luxembourg Green Exchange (LGX) only allows financial providers passing stringent eligibility tests to offer investments on the market.
Luxembourg’s general stock exchange already has a reputation for trading in green investments.
From the start of LGX, the 114 green bonds valued at £32.28 billion were transferred to the new book.
To qualify for LGX, issuers must show their securities pass some strict tests:
- The security has to have a transparent label as a green or equivalent product, such as a climate-aligned security
- Issuers must clearly describe how the cash raised will be spent, showing that all the money finances a green purpose
- The market must be provided with regular external audits
LGX CEO Robert Scharfe explained that interest in green securities has soared due to the Paris COP21 climate change conference.
Focus on change
“There is a real desire for change. The green market has enormous potential but this needs to be matched by interest from investors,” he said.
“By setting strict standards for green securities, LGX aims to create an environment where the market can prosper.
“The upcoming COP22 event will focus on preparations for the Paris Agreement to enter into force. With LGX, a dedicated platform for both issuers and investors, we are granting the solution for financing green projects.”
The International Energy Agency has estimated that around £768 billion a year is needed to finance low-emission energy projects until 2050.
Scharfe commented that ethical investors needed certainty over how their money was spent.
Certainty over funding
“That’s because investors are sceptical, and understandably so, about how the proceeds for green projects are being allocated. It’s not enough to say ‘green is green’. Investors are becoming more sophisticated and are demanding more granular information,” he said.
“Equally, issuers must be convinced of the benefits a truly green bond market can provide. In particular, the visibility for their securities and trust gained among investors.”
Opening LGX follows a series of green investment frauds, mainly involving the hard sell of carbon credits or hardwood timber plantations. These frauds have robbed unwary investors of millions of pounds of savings.
Although the exchange concentrates on green bonds, LGX does offer investors more security than open market dealings.