Luxembourg has introduced the world’s first ever green covered bond structure, which entered into force on 1 July 2018.
The green covered bond is a new financial instrument that facilitates investment in renewable energy such as wind power, solar energy and other sustainable sources.
According to the ABBL (the Luxembourg Bankers’ Association), “The introduction in Luxembourg law of this new type of covered bond will further strengthen Luxembourg’s position as a center of competence in the field of green finance.”
Fabio Mandorino, adviser to the ABBL on commercial banking, private banking and sustainable finance, outlined the main potential impacts of the new law as follows:
“As the legal definition is broad enough to embrace a wide range of ESG (environmental, social, governance) initiatives, this could boost the financing of environmental and climate protection projects (including renewable energy, waste, water treatment or e-mobility projects). It creates a legal framework with clear criteria and standards that will increase the confidence of potential investors in ESG products (i.e. a wider audience of institutional and private investors) and will revitalize the local covered bond market and promote the dynamism of the Luxembourg financial center.”