Sustainability standards and labels

The Luxembourg Green Exchange (LGX) is the world’s first and unique platform displaying a variety of sustainable finance instruments. Since its creation in 2016, the platform has expanded from solely green bonds to include social and sustainability bonds, funds, indices, and other instruments. All instruments displayed on LGX must be aligned with a recognised international standard, framework, taxonomy or label and comply with LGX’s strict eligibility criteria.

Sustainability standards and labels

Different standards, frameworks, taxonomies and labels are included in the LGX eligibility criteria:
 
  • Bond standards: ICMA’s Green Bond Principles, Social Bond Principles and Sustainability Bond Guidelines, the Climate Bonds eligibility taxonomy, the People’s Bank of China Green Bond Endorsed Project Catalogue, and other aligned frameworks.
 
  • Fund labels: LuxFLAG’s Climate Finance, Environment, Social and ESG labels, FNG’s label for sustainable mutual funds, the Nordic Swan Ecolabel for funds, the French government’s SRI and Greenfin labels and the Austrian ecolabel for financial products (Österreichisches Umweltzeichen).

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.

Standards

Green bonds


The Green Bond market, as it is structured today, is supported by several internationally recognised standards, which can be used by entities wishing to issue a Green Bond.

The standard applied to each new issuance depends on the market and investors where the security is being issued.

For international securities displayed on LGX, issuers may align with International Capital Markets Association (ICMA)’s Green Bond Principles, the Climate Bonds Initiative (CBI) Climate Bonds Standard, the People’s Bank of China (PBoC) Green Bond Catalogue or another framework aligned with the above mentioned standards.

Below is a list of broad categories that align with both ICMA’s Green Bond Principles and CBI’s Climate Bonds Standard of green projects:
 
  • 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 which meet regional, national or internationally recognised standards or certifications

Comparing green bond standards and frameworks

The table1 below compares various Green Bond standards, including those recognised by LGX and includes the ICMA’s Green Bond Principles, CBI’s Climate Bonds Standard and PBoC's China Green Bond Catalogue. The table also includes a comparison of these standards with the European Commission’s High Level Expert Group (HLEG) and Technical Expert Group (TEG) on Sustainable Finance’s proposed2 EU Green Bond Standard3.
 
Specific topic ICMA Green Bond Principles PBOC Green Catalogue Proposed EU Green Bond Standard
Reference of alignment with standard/framework in legal documentation Recommended Required Not required Required
Alignment with the EU Taxonomy, including four requirements (1) substantial contribution to environmental objectives, (2) do-no-significant harm, (3) minimum social safeguards and (4) technical screening criteria. (For details, see Annex 1 of the TEG June 2019 Report.)
Project categories Guidance on high-level categories Linked to detailed qualification criteria Detailed green catalogue Compliance with the EU
Taxonomy. Green Bond Framework required. (For a template, see Annex 2 of the TEG June 2019 Report.)
Disclosure of proportion of proceeds used for refinancing Recommended Required Recommended Required
(For a reporting template, see Annex 3 of the TEG June 2019 Report.)
Impact monitoring and reporting Recommended Addressed in Climate Bonds Standard qualification criteria Recommended Required
(For a reporting template, see Annex 3 of the TEG June 2019 Report.)
External review requirements Recommended

External review may be partial,
covering only certain aspects of
an issuer's  green bond or associated green bond framework, or full assessing alignment with all four core components of the GBP
Required Recommended Required
Verification of the Green Bond Framework and the Final Allocation Report by an accredited verifier to confirm conformity with the EU GBS. 
Publication of external review Recommended Recommended Recommended Required
Accreditation of external reviewers Not addressed in GBP Have a dedicated “Approved verifier” list Required A centralised scheme of accredited verifiers, operated by ESMA. Voluntary interim registration scheme for an estimated transition period of up to 3 years.

1This table is of a non-exhaustive informative nature, it will be updated on a regular basis
2The European Commission is assessing a possible legislative initiative on the proposed EU Green Bond Standard
3EU Technical Expert Group on Sustainable Finance, Report on EU Green Bond Standard, June 2019, available here
  Usability guide for the green bond standard, available here


Social bonds


When the proceeds from an instrument are used exclusively to finance or refinance social projects, the bond will be displayed on LGX as a social bond. There are several broad categories of eligibility for social projects that align with the ICMA’s Social Bond Principles (SBP):

  • Affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy)
  • Access to essential services (e.g. health, education and vocational training, healthcare, financing and financial services)
  • Affordable housing
  • Employment generation including through the potential effect of SME financing and microfinance
  • Food security
  • Socioeconomic advancement and empowerment


Examples of target populations include, but are not limited to:

  • People living below the poverty line
  • Excluded and/or marginalised populations and/or communities
  • Vulnerable groups, including as a result of natural disasters
  • People with disabilities
  • Migrants and/or displaced persons
  • Undereducated persons
  • Underserved, owing to a lack of quality access to essential goods and services
  • Unemployed persons

There are several categories and sets of criteria defining social projects that can be used as complementary guidance.


Sustainability bonds


When the proceeds of a bond are used to finance a blend of green and social projects and are aligned with the GBP and SBP, the bond will be classified as a sustainability bond. It is understood that certain social projects may also have environmental co-benefits and that certain green projects may have social co-benefits. The classification of the use of proceeds of the bond, such as green bond, social bond or sustainability bond, should be determined by the issuer based on its primary objectives for the underlying projects.


Chinese domestic green bonds


Chinese domestic issuers are subject to different green bond guidelines which will define what constitutes eligible projects to be financed by a Chinese domestic green security. The following guidelines exist:

  • Green bonds issued by financial entities are subject to the People’s Bank of China (PBOC) Green Bond Endorsed Project Catalogue
  • Green domestic corporate bonds (and in general non-listed companies) are subject to the National Development and Reform Commission (NDRC) Green Bond Guidelines
  • Green bonds issued by listed companies and corporate asset backed securities are subject to the China Securities Regulatory Commission (CSRC) Guidelines for Supporting Green Bond Development


Alignment between China and international standards

Green labelling
  Current level of alignment Roadmap to achieve harmonisation for Chinese and international green bonds
Management of proceeds Fully aligned Continue current approach
Reporting and disclosure Fully aligned Continue current approach
External reviews and assurance Closely aligned Further encourage third party assurance as standards and criteria are adopted and Chinese verifiers' capabilities improve

Green Definitions
  Current level of alignment Roadmap to achieve harmonisation for Chinese and international green bonds
Categories Mostly aligned Excellent alignment already. A small number of areas to explore further, such as low-carbon equipment supply chains and projects involving fossil fuels
Sector-specific criteria Some alignment Further work on investigating overlaps and differences between Chinese definitions and international criteria. Important work needed to align with international efforts as China builds out (or adopts) its library of sector-specific criteria
Basis for criteria Some alignment Use a scientific framework to ensure that the project-level criteria for green bonds are in line with China’s national environmental targets, including emission reduction targets
Climate Bond Initiative – Roadmap for China: green bond guidelines for the next stage of market growth – April 2016


An overview of green definitions endorsed by PBOC and NDRC
PBOC: China Green Bond Endorsed Project Catalogue
Categories Sub-categories
1. Energy saving
  • Industrial energy-saving
  • Sustainable buildings
  • Energy management centre
  • Urban and rural infrastructure construction with energy-saving efficiency
2. Pollution prevention and control
  • Pollution prevention and control
  • Environmental restoration project
  • Clean utilisation of coal
3. Resources conservation and recycling
  • Water saving and unconventional water use
  • Redevelopment and integrated utilisation of tailings and associated mine byproducts
  • Recycling and utilisation of industrial solid waste exhaust gas and effluent
  • Recycling, processing and utilisation of renewable resource
  • Remanufacturing of electromechanical products
  • Recycling and utilisation of biomass resources
4. Clean transportation
  • Railway transportation
  • Urban rail transit
  • Public urban and rural transportation
  • Waterway transportation
  • Clean fuel new energy automobile
  • Internet application on transportation
5. Clean energy
  • Wind power generation
  • Solar photovoltaic (PV) power generation
  • Smart grid and energy internet
  • Distributed energy resource
  • Solar thermal application
  • Hydropower generation
  • Other new energy application
6. Ecological protection and climate change adaptation
  • Natural ecological protection and protective development of tourism resource
  • Ecological agriculture, husbandry and fishery
  • Forestry development
  • Emergency prevention and control of disaster

NDRC green bond guidelines
  Areas
1. Energy saving
  • Technology improvement for energy saving and emission reduction
  • Green urbanisation  energy
  • Energy saving and environmental protection industry
2. Pollution prevention and control
  • Pollution prevention and control
3. Resources conservation and recycling
  • Circular economy
  • Water saving and unconventional water use
4. Clean transportation
  • Green urbanisation  transport
5. Clean energy
  • Clean and efficient use of energy
  • New energy hydropower, wind, nuclear, solar, bioenergy, geothermal, shallow geothermal energy, marine and air energy
6. Ecological protection and climate change adaptation
  • Ecological agriculture and forestry
  • Ecological civilisation demonstration projects
  • Low-carbon industry projects
  • Low-carbon demonstration projects
Climate Bond Initiative – Roadmap for China: green bond guidelines for the next stage of market growth – April 2016

Labels

Funds labelled by a labelling agency benefit from added credibility, transparency and superior quality standards.


ESG funds

An ESG fund incorporates environmental, social and governance (ESG) factors into its investment decisions and processes following specific investment selection strategies.

ESG fund labels accepted by LGX
ESG funds having one of the below labels can be displayed on LGX. 



Green funds

A green fund invests its assets in environment-related sectors and activities, incorporating specific investment selection strategies into its investment decisions and processes.

Green fund labels accepted by LGX
Green funds having one of the below labels can be displayed on LGX. 



Social funds

A social fund invests its assets in social-related sectors and activities, incorporating specific investment selection strategies into its investment decisions and processes.

Social fund label accepted by LGX 
Social funds having the below label can be displayed on LGX. 

Disclaimer

Display on the LGX platform should not be considered an assessment of the sustainable nature of a financial instrument. Users of the LGX platform are advised to consult all supporting documentation relating to an instrument available from the issuer, as well as the related reference standard, framework, taxonomy or label referred to by the issuer.