On 25 February 2021, the Luxembourg Stock Exchange (the “LuxSE”) announced the launch of a brand-new section to the Luxembourg Green Exchange platform, exclusively dedicated to so-called Climate-Aligned Issuers (“CAIs” and the section dedicated to CAIs, the “CAIs Section”). For this project, the Luxembourg Green Exchange (the “LGX”) teamed up with the Climate Bonds Initiative, an international not-for-profit organisation working to mobilise the USD 100 trillion bond market for climate actions with the aim of developing a large and liquid climate bonds market.
Which issuers’ bonds are eligible to be displayed on the new section of LGX?
Issuers wishing to be displayed on the new CAIs-Section must first list their debt securities on one of the Luxembourg Stock Exchange’s listing venues: the EU-regulated Bourse de Luxembourg (BdL) market, the exchange-regulated Euro MTF or the Securities Official List (SOL). In addition, issuers wishing to join LGX must either: (i) declare the sustainable nature of the instrument (green, social, sustainability, or sustainability-linked) as well as the relevant standards or principles they are aligned with or (ii) be recognised as “Climate-Aligned Issuer” whose securities, while unlabelled, finance climate change solutions. However, no additional fee or specific form is required, as the LGX will evaluate the bond’s eligibility based on the documents already provided during the listing process.
CAIs are identified based on the “Climate-Aligned Data Set”, a methodology developed by the Climate Bonds Initiative over time, consisting of two steps: i) the issuer-screening phase and ii) the identification of climate-aligned bonds.
In the first phase, issuers are divided in two categories based on the percentage of their revenue derived from climate-aligned activities: Issuers that derive at least 75% or at least 95% of their revenues from low-carbon activities qualify as strongly or fully aligned issuers, respectively. Issuers in both categories are classified as Climate-Aligned Issuers. Only companies (or their subsidiaries and/or financing arms) with outstanding debt are eligible for inclusion, whether public or private.
During the second step, it is assessed whether debt instruments issued by CAIs shall be defined as Climate-Aligned bonds, which are bonds that finance and/or refinance operating activities that have been identified as Climate-Aligned. Currently, the Climate Bonds Initiative defines eight areas of climate-aligned activities: renewable energy, low-carbon transport, smart buildings, water, waste, sustainable land use & agriculture, climate adaptation and Information and Communication Technology (ICT).
The issuer’s level of alignment with climate activities is applied to its outstanding debt in the following way:
- For fully aligned issuers: 100% of their outstanding debt is considered climate-aligned,
- For strongly aligned issuers: a proxy is used to determine the percentage of climate aligned bonds; this is based on a pro-rata amount, which reflects a company’s climate alignment. For example, if 80% of a company’s revenue is climate-aligned, then 80% of its outstanding bonds are considered climate-aligned. The remaining 20% of the company’s outstanding debt is not considered as climate-aligned.
- Only bonds issued on or after 1 January 2005 (date of entry into force of the Kyoto Protocol) are included.
New environmentally friendly investment opportunities
The Climate Bonds-LGX Climate-Aligned Issuers platform offers investors an additional range in the climate-aligned investment universe by connecting investors and capital with companies operating low carbon business models. Bonds issued by CAIs are not necessarily labelled as green, social or sustainability bonds, but they are nevertheless considered sustainable, climate-aligned investment opportunities through their positive environmental impact, as they finance climate-aligned activities. In that way, they constitute a necessary supplement to the labelled green, social or sustainability bonds already displayed in LGX, with a view to cater for investors’ demands and achieve global climate goals as set out in the Paris Agreement and the United Nations Sustainable Development Goals.
Currently, the Climate Bonds-LGX Climate-Aligned Issuers section already includes more than 20 issuers, the full list of which is available here.