Executive commitee member of the Luxembourg Stock Exchange (LuxSE), Julie Becker is also the founder of the LGX platform dedicated exclusively to green instruments which launched in 2016 and has since received a number of awards and recognitions worldwide. Photos: Mike Zenari
Julie Becker of the Luxembourg Stock Exchange (LuxSE) is convinced one day sustainable finance will be embedded across all finance by default, but says transparency is critical for sound investments.
Green bonds have been spiking, with new issuances reaching $117bn in the first half of 2019, per Forbes. Becker, LuxSE executive committee member and Luxembourg Green Exchange LGX founder, provides insight into the green channel, the performance myth and upcoming EU taxonomy.
Natalie A. Gerhardstein: You initiated the creation of the LGX in 2016. Can you talk about its developments since, particularly in 2019?
Julie Becker: In September 2016 we decided to create this platform which was entirely dedicated to green bonds. Best market practices then and now were only voluntary, but we made them mandatory on our platform, asking issuers to provide us with external, third-party review and commit to deliver on their promises. Six months after the launch we extended the platform to social and sustainability bonds, and a year later we extended the platform to new kinds of financial instruments, socially responsible investment (SRI) funds, with renewing those for green funds, social funds and ESG (environmental, social and corporate governance) funds.
In 2019, we were chosen by World Bank as their reference platform… We organised a bell-ringing ceremony at the Philharmonie for the display of almost 180 sustainable development bonds of World Bank on the green platform. At the end of 2018, we were chosen by International Finance Corporation (IFC) to display all the thematic bonds on the green exchange. They decided to double list some green or social bonds already listed on other stock exchanges, like London or Milan, because they’re convinced it adds value and brings transparency to investors.
As a market operator, we’re convinced that our role is not only to enhance visibility and promote issuers’ efforts, but also to protect investors and bring them maximum information they need to make informed investment decisions.
Can you talk more about the Shanghai Stock Exchange (SSE) cross-border collaboration and what it means for investors?
In September 2017, we signed an MoU with the SSE to display green bonds listed on SSE on our screens in Luxembourg, with documentation in English to allow the international investor community to access information about Chinese domestic green securities. In June 2018, we signed another agreement with them to launch concretely the green bond channel with green bond index, with quotes that were simultaneously displayed in Luxembourg and Shanghai. In April 2019, an extension of the green bond channel with SSE was signed with the objective to make it mutual, displaying international securities on the Shanghai platform from Luxembourg, really creating a channel between the two exchanges.
You’ve been a part of the EU high-level expert group on sustainable finance. Can you tell us more about the EU taxonomy, which will present common standards for defining ESG investment? Will it add pressure on asset managers outside the EU?
I’ve been very actively involved in the high-level group on sustainable finance which released a report for the Commission on which it decided to build this action plan. [Then] they released the legislative package with the taxonomy. The LGX was selected to go on with these works through the technical expert groups on sustainable finance. At both the high-level expert and technical expert groups, we were mostly active in the green bond standard working group rather than the taxonomy, per se, but I’m able to talk a bit about the taxonomy too.
The taxonomy is a classification of what is green [and] will be built around three pillars. To be considered green, you need to meet one of the six environmental objectives defined by the Commission in its action plan and comply with the principle that you don’t harm any other of the environmental objectives which you are not targeting, nor do you breach social international standards, [e.g.] labour laws. What has been recently defined is technical screening criteria, which helps users define whether the nature of the activity is green enough to comply with the taxonomy. So far, it’s a step-by-step approach, with the taxonomy focusing only on climate change mitigation and adaptation, not on the six environmental objectives. It doesn’t mean that it will stop now or be incomplete, but it’ll be a long process because this is extremely complex, based on scientific work [and] different representatives of civil society. The main challenge is to keep it simple and useable. For asset managers in particular, it’s about disclosures, taking those criteria into consideration in their portfolio management strategy and decision-making processes.
Some take a cynical view on ESG investing, that it’s simply a marketing tool, like greenwashing. What would you say to the sceptics?
I can understand if they were convinced from the beginning that this is fad, [but] I’m convinced we have no choice. We have to do more, make sure everyone understands he has to act and change his mindset so that the planet will remain viable, especially for the new generations… Of course, we need to ensure integrity and avoid greenwashing. At the Exchange, we are convinced that all of this is linked to transparency, making sure investors understand in what kind of projects they are investing, and the issuer reports and delivers on commitments. We can discuss some projects, like oil and gas companies issuing green bonds for specific green projects while at the same time continuing other activities that could be criticised. Is this greenwashing? I would say no, not at all, because a green bond per definition is a bond which finances green projects. We are judging the project and financial instrument, not all the issuer’s activities.
Becker was appointed to the EU high-level expert group on sustainable finance in 2016.
For me, greenwashing is linked to non-transparency and misleading information that could lead to investments that are not pursued by investors. Green bonds are booming, and sceptics are asking if these are really green bonds, or if everybody has a right to issue them. Issuers are realising it’s extremely important to be part of the transition, and they are going to have to incorporate ESG into their business model, they have no other choice… Thinking about ESG means also thinking about the planet and community as a whole, and all their stakeholders--beginning with their employees—and in particular millennials.
Do you think at some point all investing will be “green” by default, without the need to be specially labelled as such?
I’m quite optimistic. We won’t talk about sustainable finance, it will become completely embedded in finance, as long as finance becomes completely transparent. That’s for me the main shift since the financial crisis: I think investors are asking where their money is going, they want to invest in projects that contribute to sustainable development goals and be sure of the impact they have. It’s not just a question of financial return but also societal impact. We need to get rid of the performance myth. There’s no contradiction between investing sustainably and financial performance--on the contrary--and it has been proven by many surveys now. Millennials in particular are ready to have a bigger impact on society and if needed [would accept] a lower financial return--if needed, but it’s not even the case. In the context of high volatility, it’s proven that responsible investments are much more stable and less risky than traditional investments.
What would you say to young women just starting off a career in finance?
Trust yourself… [you’re] in the first row. Be different, be proud of being different. It’s important to contribute to this diversity that we need--and by saying so, I’m not at all saying that we don’t need men; on the contrary, I think that gender-balanced companies and society are very important.
In green finance, in particular, you have more women than men. It happened recently I was on panels with women only--the first time in my life, and it’s because it was green finance. I think women onboard easily to this topic because there’s a sense of purpose in it. It’s also proven in some surveys that women are less inclined to high financial returns without having an impact on something, or without giving a sense of purpose to their investment, and I think that’s the reason why there are so many women in green finance. Also because we are mothers, caring very much about future generations…
What developments are most on your radar as we soon head into 2020?
We need to raise awareness and educate people--not only the entire investment chain, but [others], pupils at school and students at university. I think we are going to see more and more master’s in sustainable finance or sustainability in general. We need to make sure we [speak] the same language--not only in Europe, among different member states trying to agree on this taxonomy, but also worldwide from the US to China, because it’s a global fight for which we really need to understand each other. That doesn’t mean that we need to agree on all the features of taxonomy, but we need to understand what others are talking about. I’m really focusing on transparency, and what’s important as an investor is that you’re able to understand what green means in China, or Europe, or the US if it’s different--but easily. For this, we need labels and standards, like it may exist already in tourism or organic food. It’s exactly the same for financial products. This is also important to fight against greenwashing and ensure the integrity of financial products. And the third element is if the governments at national levels want to put in place incentives to foster green finance to develop [and] to be sure the products they are fostering will not be greenwashed but, on the contrary, to make sure that they are clearly identifiable as green and verified by an independent third party, for instance, or labelling agencies. We also need to get rid of this performance myth and be sure everyone understands it’s a double impact they will have by investing sustainably, not only financial returns but an impact return. For all of this, we need structured data…we are swimming in ESG data which are different, not harmonised, and for all this we need new technology. We have to face climate and digital, but I’m convinced that they go together.