03/02/2021

A year in review - LGX
2020 from a sustainable finance perspective


The COVID-19 pandemic has accelerated the focus on sustainability across the world. As more and more attention is given to the devastating effects of climate change and the necessary transition to a low-carbon and more inclusive world, sustainable finance is on the rise.

2020: A record year

This growth was clearly reflected at the Luxembourg Green Exchange (LGX), the world’s leading platform for sustainable securities. At the end of 2020, LGX counted close to 900 sustainable securities totalling EUR 388 billion, issued by 150 issuers in more than 30 countries. 
  • 900 sustainable securities

  • 150 issuers

  • 30 countries

In line with the global trends, we saw record growth in new sustainable bond issuance in 2020, a term that encompasses the three categories green, social and sustainability bonds. With EUR 186 billion worth of new issuance, the combined value of new sustainable bonds included on LGX in the 12-month period grew by 134% compared to 2019. In terms of the number of new sustainable securities, 2020 saw a 51% increase compared to the previous year. While there was notable growth across the green, social and sustainability bond categories, the steep rise of social bond issuance is what really marked the year of the COVID-19 pandemic, both at LGX and in international capital markets. For the first time since its inception, the value of social and sustainability bonds combined surpassed the total value of green bonds displayed on LGX in 2020.

An array of new issuers 

In 2020, we welcomed 36 new issuers to LGX. Together, these new issuers brought 63 new sustainable bonds totalling more than EUR 65 billion. In total, new and existing issuers displayed 407 new sustainable securities on LGX in 2020.

We saw great diversity in the type of issuers joining LGX last year, covering sovereigns, development banks, financial institutions and corporates. In terms of new corporate issuers, they represent an array of sectors and industries including insurance companies, banks, utilities, automotive companies, real estate developers, tech companies, consumer goods and luxury brands.

2020 was a year of firsts: 
    • NORD/LB issued the first green covered bond under Luxembourg law. The EUR 300 million bond is the world's first renewable energy covered bond with an exclusively green cover pool.
    • The Grand Duchy of Luxembourg issued Europe’s first sovereign sustainability bond. This EUR 1.5 billion bond raised financing for electric public transportation and hospitals in Luxembourg. 
    • The European Commission issued its very first social bond, under the EU SURE programme. The initial EUR 17 billion social bond protects jobs and workers across Europe, heavily impacted by the COVID-19 pandemic. 
    • Symbiotics, a market access platform for impact investing, issued a total of 7 green and social bonds - as well as its very first sustainability bond - totalling EUR 46 million last year to finance micro, small and medium enterprises and low-income households in emerging markets.

The S of ESG

When the COVID-19 pandemic started to spread across the world in March, the Social dimension was brought to the fore. We saw an immediate uptick in social and sustainability bond issuances addressing the devastating social and economic fallout from the crisis. In 2020, we welcomed EUR 17 billion worth of COVID-19 response bonds issued according to international standards for social or sustainability bonds on LGX. Issuers leading the way were development banks such as the World Bank, the International Finance Corporation, the European Investment Bank, the African Development Bank, the Council of Europe Development bank, Instituto de Crédito Official and Cassa Depositi e Prestiti. There were also corporate issuers that turned to capital markets and LGX to raise financing in response to the unprecedented situation caused by the pandemic, such as Mitsubishi and Arkea.

Beyond use-of-proceeds bonds
In 2020, transition finance became a household term and new financial products emerged. Investors increasingly moved their focus from considering a specific project to taking into account the issuer’s overall sustainability profile and strategy. After the International Capital Market Association (ICMA) published its Sustainability-Linked Bond Principles in June, Sustainability-Linked Bonds (SLBs) gained traction. SLBs are forward-looking performance-based bond instruments where the issuer commits to future improvements in sustainability outcomes with predefined sustainability objectives, within a predefined timeline. The financial or structural characteristics of the bond can vary depending on whether the issuer achieves these sustainability objectives. Unlike green, social and sustainability bonds that finance a specific green or social project, the proceeds of SLBs are intended to be used for general purposes, hence the use of proceeds is not a determinant of this category. SLBs represent a source of financing for issuers that set clear and ambitious science-based targets to become more sustainable. 
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To support transition efforts in all industries, we decided to increase the scope of LGX to also include SLBs in November, 2020. Among the first SLBs displayed on LGX last year was a EUR 850 million bond by LafargeHolcim, who has committed to drastically reduce its carbon emissions and work towards becoming a net-zero company. 

Data and Education as drivers of sustainable growth

Despite the extraordinary circumstances, 2020 was also the year of great innovation for LGX:
    • In May, we established the LGX Academy to boost sustainable finance education and increase the understanding of sustainable finance principles, standards and labels and applicable regulation among financial professionals, students and other groups. 
    • In September, we launched the LGX DataHub, a unique and centralised database of structured sustainability data now counting more than 3,000 green, social and sustainability bonds from more than 800 issuers, close to the entire universe of listed sustainable bonds worldwide. With up to 150 data points per security, the LGX DataHub allows investors and asset managers to understand and compare the social and environmental impact of different investments. 
    • In November, we established the Solactive LGX Green Bond Impact Index, together with index provider Solactive AG. This index is composed of a selection of green bonds displayed on LGX, and provides market players with exposure to the green bond market.
Together, the LGX Academy, the LGX DataHub and the Solactive LGX Green Bond Impact Index form the LGX Hub, a sustainable finance universe established to help investors make informed investment decisions and drive the growth of sustainable finance through data and education.

Towards common standards

As a member of the Advisory Council of ICMA’s Green Bond Principles and Social Bond Principles Executive Committee, and through our contribution to ICMA’s Working Groups on Climate Transition Finance, Social Bonds, Impact Reporting and Sustainability-Linked Bonds, we shared insights, experiences and knowledge with the market and helped define market standards throughout 2020. Moreover, as a member of the European Commission’s Technical Expert Group on Sustainable Finance we also contributed to the development of the EU Green Bond Standard (EU GBS) and the related EU GBS Usability Guide, facilitating the practical application of the EU GBS for market players. It is interesting to note that several of our issuers already refer to the draft EU GBS in their green bond framework.

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Leading the way

One of the main highlights of 2020 was that LGX won the United Nations Global Climate Action Award 2020, in the category Financing for climate friendly investment. We also won the 2020 Exchange of the Year award for the fourth consecutive year at the Environmental Finance Bond Awards.

We deeply thank our existing issuers for making LGX the reference venue for their thematic bonds. With the United States finally re-entering the Paris Climate Agreement and global sustainable bond issuance expected to reach new records in 2021, we look forward to welcoming new issuers to LGX.

If you would like to know more about LGX and our sustainable finance services, we invite you to reach out to Commercial Director Carlo Houblie at cho@bourse.lu