On 2 September 2020, Luxembourg launched its Sustainability Bond Framework, which meets the International Capital Markets Association (ICMA) Green, Social and Sustainability Bonds principles, the standard in the field. Just a few days later, the country also issued the first European sovereign sustainability bond over €1.5 billion, which will contribute towards financing and refinancing sustainable projects.
The first European framework for sustainability bonds
The launch of the framework, which enables the issuance of green, social or sustainability bonds (i.e. combining green and social aspects), is in line with the efforts undertaken by Luxembourg’s government over the last years in the field of sustainable finance. The framework has been laid out so as to meet the criteria for sustainable and green bonds defined by the International Capital Markets Association’s (ICMA) Green, Social and Sustainability Bonds principles. Furthermore, they are already fully in line with the recommendations of the final report of the Technical Expert Group (TEG) on the Taxonomy of the European Union. In the same spirit, the framework has been designed to comply with the draft European Green Bonds Standard (EU GBS).
In other words, Luxembourg is ensuring that all bonds issued within this framework enjoy international recognition as green, social or sustainable bonds.
So, what does is the framework about?
Proceeds from the bonds issued through this framework can only be used to finance or refinance eligible expenditure. More specifically, this covers expenditure in the following green and social categories:
- construction of green buildings;
- energy transition;
- development of low-carbon transport;
- environmental protection;
- water and wastewater management;
- climate financing and R&D;
- access to essential services - health, education and social inclusion;
- affordable housing and
- job creation.
Thus, the framework will provide an objective and transparent tool to determine the sustainability of the country's public investments.
It also serves as an important tool to achieve the country’s commitments under the Paris Climate Convention and the 17 UN Sustainable Development Goals (SDG). The framework is also aligned with Luxembourg's two flagship sustainable strategies, the National Plan for Sustainable Development (Plan national pour un développement durable, PNDD) and the Integrated National Energy and Climate Plan (Plan national intégré en matière d’énergie et de climat, PNEC).
This framework cements Luxembourg’s position and reputation as a pioneer in green and sustainable investments. Did you know for instance, that the world’s leading stock exchange dealing exclusively in green bonds in Luxembourg Green Exchange (LGX), with over €60 billions worth of green bonds? Indeed, LGX is not just the biggest, but it was also the first platform entirely dedicated to green, social and sustainable financial instruments.
Europe's first Sovereign Sustainability Bond
In a follow-up move to the publication of the framework, Luxembourg also issued Europe’s first sovereign sustainability bond. This €1.5 billion bond will contribute to finance and refinance sustainable projects, i.e. of a social and green nature. With a 12-year maturity, the bond bears a negative interest rate of -0.123%.
And investors were obviously pleased with this bond, as demand quickly exceeded the initial offer – one more proof that markets continue to place a lot of trust in the stability of Luxembourg’s economy.