The CEO of the Luxembourg Stock Exchange, Richard Scharfe, tells Natasha Turak about the exchange's expertise in green bonds, why it is dominated by debt instruments, and what is behind its international popularity.

Q: The Luxembourg Stock Exchange has recently issued its 100th green bond. What can you say about the trend of investing with respect to environmental standards? Do you see a trend here, and what does it mean for Luxembourg? 

A: The first green bond was created and listed here in Luxembourg by the European Investment Bank in 2007. The bank did this in order to have more funds to invest into projects that are relevant for society at large. During the first few years movement was very slow, but it has been accelerated substantially over the past two years. This was before the political decisions of COP 21 [the 2015 UN Climate Change Conference].

Why is that so? Simply because the responsible investment scene overall is gaining speed and investors are looking for investments that observe a number of standards of governance and environmental respect. It started very clearly with institutional investors who wanted to know what companies do and what standards they respect when investing their money or a client’s money into these funds.

In fact, since the political breakthroughs at COP 21, I believe that the movement has gained speed. Suddenly, green financing – and it’s not only about bonds, but funds, for example – is popping up and demand is increasing overall.  

Q: Are you broadly satisfied with the mix of instruments listed on the Luxembourg Stock Exchange today? Or are you looking to diversify, for instance, with more investment funds, as it looks like debt securities are the substantial part of it? 

A: We are listing 40,000 securities – probably the largest amount of securities you’ll find in any exchange. We do have a dominance of debt instruments, which represent roughly two-thirds of[our total]; that leaves one-third, quite a substantial amount of securities, representing all other instruments. Basically, name an instrument and you will find it listed here.

So the diversity of instruments is present, but it’s clear we have a dominance of debt instruments, which does not disturb me at all for the simple reason that debt capital markets are by far the most active in issuance on a daily basis, more so than equities or investment funds, so in fact there is new business every day in debt capital markets and therefore our focus on this dates back for more than 50 years. 

Q: What further steps is the exchange taking to encourage listings of instruments from a more diverse range of geographies and markets? 

A: Today we are extremely diversified because our issues are coming from more than 100 jurisdictions. Most international issuers are already in Luxembourg, but capital markets are a dynamic environment, and new things are popping up all the time. There are new issuers, new countries opening up, new instruments being invented, and the question for us is do we follow on from our past success story where we have so often been the initiator of listing new instruments?

When something new popped up in international capital markets, it’s likely that we were the first listing place. So we see many new developments taking place and we are making substantial efforts to promote our services because what is important today is for issuers of securities – and that accounts for sovereign risk as much as for corporate or for asset managers, who are ultimately issuers of investment funds – to consider listing not only as an administrative or regulatory requirement, but simply look at it from a commercial point of view.  

Q: What are your expectations for the listing of sovereign bonds in 2016 relative to recent years? 

A: Sovereigns have so far been taking advantage of the extremely low interest rate environment and if that persists at similar levels then I think markets will remain attractive from that one point. The other point that could influence the issuance volume is that there are a number of sovereign countries exposed to the decline of commodity prices in general – oil in particular – and it is likely that some of the countries we have not seen in capital markets for decades might show up in 2016. So from that point of view, yes, there can be more activity, but ultimately only time will tell. 

Richard Scharfe is the CEO of the Luxembourg Stock Exchange.


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