FAQ LGX bonds

LGX is a unique platform entirely dedicated to sustainable financial instruments launched by the Luxembourg Stock Exchange (LuxSE) in September 2016. 

LGX is not a separate market of LuxSE. It is a dedicated platform for securities that are listed on one of LuxSE’s markets (Bourse de Luxembourg, Euro MTF) or registered on the Securities Official List (SOL). In other words, LGX complements LuxSE’s existing markets by focusing on green, social or sustainable securities. Therefore, to be displayed on LGX, those sustainable financial instruments need to be listed/admitted to trading on either Bourse de Luxembourg or EuroMTF, or registered on SOL.

The majority of the debt financial instruments displayed on LGX are “use-of-proceeds” bonds, of which the proceeds are exclusively allocated to eligible green or social projects, or a combination of both. Depending on the type of projects that they finance, “use-of-proceeds” bonds are classified either as green bonds, social bonds, or sustainability bonds. 

In 2020, the LGX platform extended its scope to a new class of sustainable debt instruments: sustainability-linked bonds (SLBs). Unlike green, social and sustainability bonds, SLBs are not “use-of-proceeds” instruments, but rather, they are designed to incentivize issuers to commit to transitioning to more sustainable companies. 

The LGX platform offers an environment where issuers of sustainable securities can market their instruments and publish relevant information throughout the life of their bonds (e.g. frameworks, external reviews, allocation and impact reporting, KPI reporting…). At the same time, the platform caters to responsible investors by providing full and unrestricted access to a list of securities that are 100% sustainable, together with their respective security-specific information.

LGX is the first platform that makes industry best practices for sustainable securities a mandatory requirement. It is also the only exchange requiring issuers to commit to post-issuance reporting, once a security has been registered or listed. Within the industry best practices, LGX recognises in particular ICMA’s Green Bond Principles (GBP), Climate Bonds Initiative’s (CBI) Climate Bonds Standard (for green bonds), ICMA’s Social Bond Principles (SBP), ICMA's Sustainability Bond Guidelines (SBG), and ICMA’s Sustainability-Linked Bond Principles (SLBP).

Demand for green investments is growing rapidly. Nevertheless, the risk of greenwashing threatens the integrity of the green market. As the market evolves, there is a growing need for greater transparency.

With the creation of LGX, LuxSE aims to provide issuers of sustainable instruments and investors with a dedicated infrastructure where they can post and access sustainability-related information in a transparent and efficient way, thus boosting investor trust and integrity in the market.

The opening of the green bond window in September 2016 has been a trailblazer for our platform. As the international framework governing green, social and sustainability bonds is nearly identical (with the obvious exception of specific taxonomies), it was a natural step for LGX to extend green bonds eligibility criteria to social and sustainability bonds. As the market defines standards for new types of sustainable products such as for SLBs, LGX continues to expand its scope, with the objective to integrate the full array of sustainability instruments, all the while bringing clarity to investors.

To this day, many responsible investors have not differentiated their sustainable investments. Yet, as the market matures and knowledge improves, investors might want to assess financial instruments more specifically around their product features. Differentiating between green, social, sustainability and sustainability-linked windows will be, we believe, the future scale and diversification of the sustainable finance market.

Advantages for investors
LGX acts as a unique repository for documentation on sustainable financial instruments and thus constitutes an accessible and comprehensive place where trustworthy information can be retrieved easily and free of charge. Investors have unrestricted access to information relating to securities displayed on LGX (e.g. frameworks, external reviews, verifications, allocation and impact reports, KPI reports, etc.). This translates into lower costs of research, analysis and comparison for investors and thus enables granular due diligence on securities.

Advantages for issuers
In addition to being part of the internationally recognised platform for sustainable securities, issuers joining LGX will benefit from a dedicated security card where they can display all relevant supporting documentation. The latter includes, but is not limited to, post-issuance reporting information in line with internationally recognised best practices. LGX allows issuers to choose from a variety of disclosure methods and increases the commercial value for their additional disclosure efforts via the free display of their sustainable documentation. 

LGX acts as a curator of sustainability information. The LGX eligibility criteria and strict adherence to widely accepted standards and principles reduces the risk of greenwashing, ensuring that only issuers committed to entry requirements and providing transparency can be displayed on LGX.

LGX also acts as a platform that brings sustainable investors and issuers together. Having securities admitted to LGX offers issuers the opportunity to raise awareness about their sustainability performance via enhanced transparency.

To join LGX, issuers must first list their securities on one of LuxSE’s listing venues: the EU-regulated Bourse de Luxembourg (BdL) market, the exchange-regulated Euro MTF or the Securities Official List (SOL).

In order to be displayed on LGX, issuers must declare the sustainable nature of the issuances (green, social, sustainability, or sustainability-linked) and the relevant Standards or Principles they are aligned with (ICMA GBP, CBI CBS, ICMA SLBP, etc.). Issuers must also provide a third party external review and commit to post-issuance reporting. In the case of SLBs, post-issuance verifications are also required.

No additional file or fee is required from the issuer once it is listed: the LGX team will evaluate the eligibility of the bond based on the listing documentation.

For more details about the entry requirements, visit our dedicated page.

Eligible project categories are only relevant for “use-of-proceeds” bonds, meaning green, social and sustainability bonds. The proceeds of sustainability-linked bonds are intended to be used for the issuer’s general purposes, and are therefore not expected to be allocated to any “eligible project”.

LuxSE recognises several broad eligible project categories depending on the nature of the bond. These are defined within the relevant recognised standard that has been applied to the bond. The large majority of bonds displayed on LGX follow eligible categories as described in ICMA’s guidelines and principles, and are detailed below. The Chinese domestic green bonds follow eligible categories included in the PBOC Green Bond Endorsed Projects Catalogue, as detailed below.   

Green bonds
The entirety of the net funds raised via the security will be used to finance or refinance green projects, as defined by the Green Bond Principles (GBP) and/or the Climate Bonds Initiative’s eligibility taxonomy. The Green Bond Principles define the following ten broad green project categories:

• Renewable energy
• Energy efficiency
• Pollution prevention and control
• Environmentally sustainable management of living natural resources and land use
• Terrestrial and aquatic biodiversity conservation
• Clean transportation
• Sustainable water and wastewater management
• Climate change adaptation
• Eco-efficient and/or circular economy adapted products, production technologies and processes
• Green buildings 

Social bonds

The entirety of the net funds raised via the security will be used to finance or refinance social projects as defined by ICMA’s Social Bond Principles. These include the following broad categories:

• Affordable basic infrastructure
• Access to essential services
• Affordable housing
• Employment generation (including through the potential effect of SME financing and microfinance)
• Food security
• Socioeconomic advancement and empowerment

Sustainability bonds
The entirety of the net funds raised via the security will be used to finance or refinance a blend of green and social projects, as outlined above under the green and social bonds sections and as defined by ICMA’s Sustainability Bond Guidelines (SBG).

Chinese domestic green bonds

Eligibility categories are defined by People’s Bank of China (PBOC) Green Bond Endorsed Project Catalogue, National Development and Reform Commission (NDRC) Guidelines and China Securities Regulatory Commission (CSRC) Guidelines. These include the following broad green project categories:

• Energy saving
• Pollution prevention and control
• Resource conservation and recycling
• Clean transportation
• Clean energy
• Ecological protection and climate change adaptation

Note that (as per CBI) the PBOC Green Bond Endorsed Project Catalogue accepts retrofits of fossil fuel power stations, clean coal and coal efficiency improvements, and rail lines that mainly transport fossil fuels, which are not accepted under the Climate Bonds Initiative’s eligibility taxonomy.

We do not exclude issuers based on their industry and/or sector of activity, as we believe any line of business can contribute to the transition towards a more sustainable economy. Nevertheless, in the case of a use-of-proceeds bond, we do run a background check to confirm that the green/social/sustainability instrument to be displayed on LGX will dedicate the proceeds to green/social/sustainability activities, as defined by the relevant recognised standard applied. In addition, in the case of a general corporate purpose bond such as SLBs, we make sure to confirm alignment with the related standards in the market.

Any type of issuer may apply to join LGX provided the bond issued meets LGX eligibility criteria.

An external review is a mandatory entry requirement to LGX. Different forms of third party external reviews exist, including second party opinions, verification reports, certifications or scoring/ratings. In exceptional circumstances, LGX may conduct internal due diligence in the absence of a third party external review (for example for large issuers whose activities are dedicated to eligible activities as defined in the relevant standard applied).

Green, Social and Sustainability Bonds
In the case of green, social and sustainability bonds, pre-issuance external reviews generally focus on the following areas:

• Review of the bond’s use of proceeds framework with a conclusion about whether the framework is aligned with acceptable green, social or sustainability taxonomies;
• Review of the alignment of the process for project selection and evaluation, management of proceeds and reporting commitment with internationally accepted principles such as those issued by ICMA (GBPs, SBPs, and SBGs).

Post-issuance, issuers of green, social or sustainability bonds may also seek external verification to provide assurance on their allocation and impact reporting and confirm alignment with recognised standards throughout the life of the bond. Such post-issuance external reviews are encouraged, but are not a requirement for bonds to remain displayed on LGX. 

Sustainability-Linked Bonds
In the case of the Sustainability-linked bonds, pre-issuance external reviews are expected to focus on the following areas: 

• Confirmation of the alignment of the bond with the five core components of the SLBP;
• Assessment of the relevance, robustness and reliability of the selected KPIs;
• Assessment of the rationale and the level of ambition of the proposed SPTs, and the credibility of the issuer’s strategy to achieve them. 

Please note that post-issuance verifications are also a requirement for the display of SLBs on LGX.

Guidelines for External Reviewers
LGX has adopted the Guidelines for External Reviewers issued by the Executive Committee of the Green Bond Principles. The guidelines provide voluntary guidance relating to professional and ethical standards for external reviewers, as well as to the organisation, content and disclosure for their reports. These guidelines promote best practices in the provision of external review services for green, social and sustainability bonds.

External reviewers are invited to voluntarily provide information about the different external review services they provide by completing and publishing the “External Review Service Mapping” template. The purpose of this template is to provide market participants with greater clarity on the increasingly complex universe of external reviewers and their services.

LGX encourages external reviewers to voluntarily fill in this template in order to promote transparency and disclosure, as well as support market efficiency.

These guidelines complement the Green and Social Bond Principles, the Sustainability Bond Guidelines, the Sustainability linked bonds principles and reference other existing relevant guidance including the Assurance Framework for the Climate Bond Standard, Guidelines for the Conduct Assessment and Certification of Green Bonds (Interim) Jointly Issued by the People's Bank of China and the China Securities Regulatory Commission, the draft EU Green Bond Standards Published by the High-Level Expert Group (HLEG) on Sustainable Finance, and the ASEAN Green Bond Standards.

Once a security is displayed on LGX, LuxSE will conduct an annual review to ensure the issuer complies with the commitment to disclosure and transparency.

To remain on LGX, issuers of green, social and sustainability bonds must provide information about the intended and actual use of proceeds. The aim of this ongoing reporting is to inform investors about how funds are being allocated to projects and, where possible, about the expected environmental, social and sustainability impacts.

Issuers of sustainability-linked bonds must provide information on the performance of the selected KPIs. They must also seek an external verification of their performance level against each SPU for each KPI, outlining the related impact on the bond’s financial and/or structural characteristics. 

In any case, the first mandatory reporting must be published 12 months after the bond was issued or at another date (as agreed with LuxSE). Issuers can also publish reports more frequently, on a voluntary basis. Issuers are encouraged to report throughout the life-duration of the bond up until maturity; at a minimum, issuers shall report up until full allocation of proceeds.

Accepted formats of ongoing reporting include dedicated bonds reports, newsletters, sustainability reports or any other format featuring all relevant information on the allocation of the proceeds or the KPIs and SPTs.

It is at the issuer’s discretion to choose its preferred reporting format and frequency. LGX does not impose any standards or rules on documentation for post-issuance reporting, but LuxSE reserves the right to withdraw a security from LGX if it does not sufficiently abide to the above requirements.

No. LGX is not a separate market. It is a dedicated platform for securities that are listed on one of the LuxSE’s markets (either Bourse de Luxembourg or EuroMTF) or registered on the Securities Official List (SOL). In other words, LGX complements LuxSE’s existing markets by focusing on sustainable securities.

The Chinese Domestic Green Bond Channel is a cooperation between the Luxembourg Stock Exchange and the Shanghai Stock Exchange aiming to improve international investors’ access to data on Chinese domestic green bonds listed in Shanghai. This is done by providing relevant information in English. Further information can be found here.