Green finance represents a relevant issue presently and for the next years. Companies have to achieve their compulsory participation in greenhouse gas emission, in a sustainable craze.
Green finance is an ecological priority and has to be defined, just like the beginning of Europe’s involvement. Then, Luxembourg example is highlighted, in the lines below.
Green finance definition
First, Green Finance can be defined as a reference to all financial investment or instruments: equity, grant, debt, sale, sale risk and purchase management tool (like insurance commodity or product, interest rate derivative, credit, and so on). These tools are issued thanks to the contract of a firm, person, agency and facility as an exchange with real positive externalities, considered as usual, additional and checked. The positive externalities come from the property rights transfer, with a regional, national, sub-national and worldwide laws.
Firms were launched as climate sustainable and finance company, for example in London. Their role is to accompany clients finance and develop what is called renewable energy; climate adaptation projects and carbon mitigation especially in developing countries.
New rules are created by Europe, in the green and sustainable context. Indeed, the European Parliament made a report, about sustainable finance. In fact, sustainable finance is concocted with Green party reporters. The green party rapporteurship is composed of high profile specialists on finance, civil society and politics.
To present the background, $60 billion of green bond issuance came from Europe, last year. Green bonds issuance rose over the past 5 years, around 80% all over the world. Last year, 150 initiatives in relation with the responsible investment, were drafted to European countries, depending on the credit rating agency. Europe, apparently, needs €180 billion each year, in investments according to Paris agreement pledge (to well below 2C as a global warming).
International capital markets constitute a successful mean to increase money in order to deal with climate change. In fact, private entities and governments propose debt securities thanks to bonds in order to support their proposal. Projects, like sustainable development bonds, are in relation with social and wider sustainable development.
Actually, green bonds, fixed income elements, represent popular bonds. Moreover, green bonds increase money concerning different activities for an environmental and climate-linked profit. These bonds hold high potential for increasing, growing capital. For issuers, green bonds are a mercurial instrument. Green bonds are easily assimilated by investors
Luxembourg example: green, sustainable and social bonds
As a pioneer, Luxembourg is an example for European countries. Luxembourg Stock Exchange announced in 2007, the first worldwide green bond. This bond came from Luxembourg European Investment Bank or EIB. The Luxembourg Stock Exchange or LuxSE introduced in 2016, a worldwide platform, LGX (Luxembourg Green Exchange) the first one to draw up solely the list of green bonds. This list was furthermore extended to group social and sustainable securities. LGX must meet strict criteria, just like labelling, ex-ante review and the use of proceeds. Securities applied on the LGX are green, viewing the initiative to use ex-post reporting requirement certificates. Presently, more than 50% of the totality of green bonds concern Luxembourg.
Consequently, investors from Luxembourg are increasing and they integrate ESG methods into investment proceedings.