FAQ-LGX-Funds

FAQ - LGX Funds (Luxembourg Green Exchange)

The Luxembourg Green Exchange (LGX) is a platform dedicated to sustainable financial instruments, which include bonds, funds and other financial instruments.

These Frequently Asked Questions (FAQ) address specific issues around the registration of funds. A separate FAQ document dedicated to bonds is also available on our website: www.bourse.lu/faq-lgx-bonds.
  • LGX is a unique platform launched by the Luxembourg Stock Exchange (LuxSE) in September 2016 and is entirely dedicated to green, social, sustainability and ESG financial instruments.

    As to the funds, the platform offers an environment where ESG, green and social fund promoters can display their securities and publish information relating to their investment policy, investment strategy, exclusion policy or any other document promoting the fund’s transparency.

    At the same time, the platform caters to responsible investors by providing full and unrestricted access to a list of securities that are dedicated to sustainable finance, together with their respective security-specific information.

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

  • LGX is a platform that brings ESG, green and social investors and asset managers together.

    a. Advantages for investors
    LGX acts as a unique repository for ESG, green and social information and thus constitutes an accessible and comprehensive place where trustworthy information on ESG, green and social funds can be retrieved easily and for free. This translates into lower costs of research, analysis and comparison for investors.
    Potential investors looking to invest in ESG, green or social securities and who value high levels of transparency will benefit from this platform. They will have unrestricted access to information relating to a security displayed on LGX (e.g. frameworks, investment policy and strategy, exclusion policy, certifications, responsible investing reports, etc.), allowing granular due diligence of the security.
    The strict adherence to the LGX rules ensures that only funds that commit to entry requirements and provide full transparency can be displayed on LGX. The risk of greenwashing is hence reduced.

    b. Advantages for asset managers
    Funds joining LGX will benefit from a dedicated security card where they can display their responsible investment policies and strategies, as well as regular sustainability reporting of both the fund and the asset manager. 
    Displaying a fund on LGX is a unique opportunity for asset managers to be part of the internationally recognised platform for sustainable securities. This enables asset managers to raise awareness about the sustainability performance of the funds via enhanced transparency, and contributes to diversifying and increasing the funds’ investor basis. Indeed:
    • 200,000 users visit the LuxSE website per month and see LGX content.
    • LGX has a very active and impactful communication strategy – social networks (LinkedIn, Twitter), press publications (local and international, e.g. Funds Europe, Responsible Investor), references on websites of other sustainable finance actors and data vendor platforms.
    • LGX receives high visibility through the vast number of international events to which LuxSE participates, or through hosting local sustainable finance events such as investor and stock exchange days.

    Displaying a fund on LGX’s fund window also includes the asset manager into the wider LGX ecosystem. LGX brings together not only the buy- and sell-side of financial transactions, but it is also part of a larger network of actors engaged in sustainable finance (European Commission, UNEP Financial Inquiry, UN Sustainable Stock Exchanges Initiative, Climate Bonds Initiative, governments, etc.). This not only opens great networking opportunities but also enables asset managers to work alongside the best practitioners on the market.

  • Yes, the fund window is open to all socially responsible investment (SRI) funds, regardless of their geographical location, provided they have been granted one of the following fund labels: LuxFlag Microfinance, LuxFlag Environment, LuxFlag ESG, Luxflag Climate Finance (Luxembourg), FNG (Germany), Nordic Swan Ecolable (Nordics) the TEEC or the ISR labels (France), and they fill out the application form.

  • Depending on the nature of the fund, LuxSE recognises several investment themes within the green and social categories:


    GREEN FUNDS
    • Renewable energy: the fund invests in renewable energy, including production, transmission, appliances, and products.
    • Environmental and ecological: the fund invests in diverse environmental/green sectors, such as energy efficiency, climate change adaptation, pollution prevention and control, sustainable food and agriculture, sustainable fishery, biodiversity conservation, clean transportation, circular economy adapted products and processes, and green buildings.
    • Carbon: the fund invests in carbon credits used to offset emissions by financing carbon reduction projects.
    • Forestry: the fund invests in environmentally-sustainable forestry, including afforestation and reforestation, plantation forestry and sustainable forest management with internationally recognised certificates, and preservation or restauration of natural landscapes.
    • Water: investments in water-related sectors, such as water supply and treatment, water technology, sustainable water and wastewater management, environmental services, mineral water, and aquatic biodiversity conservation.
    SOCIAL FUNDS
    • Social impact: the fund invests in companies and projects aiming to generate social impact alongside a financial return, including in education, sustainable health, food and nutrition, community development, affordable basic infrastructure, affordable housing, fair-trade, sustainable agriculture, sustainable infrastructure, employment generation for specific target groups, and socioeconomic advancement and empowerment.
    • Social entrepreneurship and solidarity: the fund invests in social enterprises. It invests a share of assets in solidarity projects. Funds devolve part of their assets or commissions raised to charitable projects.
    • Microfinance: the fund invests in microfinance loans, debt or equity instruments.
    Funds labelled as ESG do not have an investment theme per se.
    All ESG, green and social funds can apply one or several of the following investment strategies:
    • Norms-based screening: approach based upon screening in accordance with recognised frameworks, such as the UN Global Compact or Human Rights.
    • Multiple exclusions: approach that excludes multiple investments or classes of investments from the investible universe.
    • Best-in-class: approach where leading or best performing investments within a universe, category or class are selected or weighted based on ESG criteria.
    • ESG integration: approach that analyses the ESG performance of companies and considers this in the investment process.
    • Engagement: active ownership through engagement with companies on ESG matters.
    • Voting: active ownership through voting on ESG matters.
    • ESG ethical screening: approach based on a strategy dedicated to screening in accordance with specific frameworks or values, such as ESG Sharia or faith-based screening.
    • Impact investing: approach where specific impact objectives are targeted, measured and reported.
  • Only funds benefitting from a label delivered by one of the following label agencies: LuxFLAG (Luxembourg), FNG (Germany), Swan (Nordics), and the TEEC, or SRI labels (French government) can be displayed on LGX. The display on LGX also implies that the fund commits to an ongoing reporting covering the sustainability performance of the fund’s portfolio as well as a proof of label accreditation renewal. A simple application form must be submitted with relevant supporting documents.

    The application form addresses the following chapters, also described on the LGX website: www.bourse.lu/displaying-funds-on-LGX

    • Registration: to display a fund on LGX, an asset manager must first register its security on one of LuxSE’s listing venues, i.e. the EU-regulated Luxembourg Market (BdL), the exchange-regulated Euro MTF market or the Securities Official List (SOL).
    • Fund classification: once registered, the fund will be classified as ESG, green or social, according to the nature of its strategy and the fund label it holds.
    • Transparency and disclosure: the asset manager will disclose detailed information about the fund on the LGX website.
    • Commitment to ongoing reporting: the asset manager commits to ongoing reporting and provides responsible investing report as well as a proof of label accreditation renewal.
  • The LuxSE Securities Official List, or SOL, offers asset managers the possibility to register their securities on our official list, without admission to trading. LuxSE SOL is designed for asset managers looking for visibility and for whom admission to trading is not a prerequisite. This could be of interest for various issuers and securities.

    A dedicated Rulebook of the Luxembourg Stock Exchange and the Grand-Ducal Regulation of 13 July 2007, which implements the Directive 2001/34 /CE establishing the existence of the official list, governs the LuxSE SOL.

  • Information on sustainability is essential. While it is not mandatory to disclose the full prospectus of the fund, detailing the investment policy and investment strategy is mandatory.
     
    On a general basis, reporting on investment strategies such as norms-based screening, multiple exclusions, best-in-class, ESG integration, ESG ethical screening, engagement and voting can be made at asset manager level, from a consolidated perspective. For impact funds, impact reporting is mandatory and should be done at the fund level.

     

  • LGX’s objective is to leverage existing documents and not to request new material from the asset managers. Therefore, the ongoing reporting required is adapted to the nature of the reporting conducted by each asset manager and fund, whilst always being in line with the market practice. LGX accepts existing forms of reporting on:

    • Responsible investing
    • Proof of label accreditation renewal
  • Asset managers often report on investment strategies such as norms-based screening, multiple exclusions, best-in-class, ESG integration, ESG ethical screening, engagement and voting at a consolidated level. This is sufficient for LGX as long as the portfolio composition is disclosed as least on an annual basis.

  • Upon reception of the application form, LGX screens whether the fund dully meets the entry requirements. If the fund has one of the following fund labels, it will be considered as meeting the requirements, in addition to providing ongoing reporting: LuxFLAG (Luxembourg), FNG (Germany), Swan (Nordics), and the TEEC, or ISR labels (French government).

    LuxSE reserves the right to request any additional information related to the above characteristics if the description is not clear, satisfactory or complete in LuxSE’s opinion.

  • Once a fund is displayed on LGX, the information collected on the application form (such as the fund’s investment strategy or investment policy) will be published on the fund’s security card.

    An annual review will be conducted as to whether the fund’s label accreditation has been renewed by the labelling agency. The label renewal demonstrates the fund’s continuous compliance and commitment towards disclosure and transparency, and therefore enables it to remain displayed on LGX. LuxSE reserves the right to withdraw a security from LGX if it does not abide by LGX requirements.