Green & Sustainable Finance - Successful issuance of the first sovereign sustainability bond in Europe

Luxembourg becomes the first European country to launch a Sustainability Bond Framework. This innovative framework, which meets the highest market standards, is also the first in the world to fully comply with the new recommendations of the European taxonomy for green financing.

Luxembourg has just launched its Sustainability Bond Framework, which meets the International Capital Markets Association (ICMA) Green, Social and Sustainability Bonds principles, the standard in the field. Living up to its reputation as a first-mover, Luxembourg has also incorporated eligibility criteria that 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).

The launch of the framework, which will enable the issuance of green, social or sustainability bonds (i.e. combining green and social aspects) in the near future, is in line with the efforts undertaken by the Luxembourg Government over the last years in the field of sustainable finance, and underlines the innovative and proactive role of the country and its financial centre, which is already today an international leader in the area of sustainable investments. Anticipating current market trends and investor demand that are increasingly oriented towards sustainable investments, the framework will enable the country to be ready for the financial world of tomorrow. In particular, it will contribute to the positive development of the sustainable bond market and accompany the maturing of this market on a global scale.

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. In this way, the framework will provide an objective and transparent tool to determine the sustainability of the country's public investments, and act as a catalyst to achieve its 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 (PNDD) and the Integrated National Energy and Climate Plan (PNEC).

Pierre Gramegna, Minister of Finance, comments: "I welcome the launch of this new Sustainability Bond Framework, which is at the forefront of innovation in financing, and will enable the country to consolidate its position as a centre of excellence in the field of responsible, sustainable and innovative finance. The framework paves the way for greener, more social and therefore more sustainable financing, and thus is fully in line with Luxembourg's commitments to sustainable development and its ambitious public investment policy. Through this framework, the country is well positioned to meet the challenges of a dynamic economic development, which takes into account environmental issues and social equity."


Press release by the Ministry of Finance

Luxembourg has just successfully issued its first sovereign sustainability bond. Based on the new sustainability bond framework, presented on 2 September 2020, 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%.

The fact that the demand for this bond quickly exceeded the initial offer underlines both the interest that investors have in this new type of product and the confidence that the markets place in the Luxembourg economy. With the successful issuance of this first sustainability bond, Luxembourg, as a key player in the area of sustainable finance, contributes to accelerating the development of this new segment and further consolidates its position as one of the leading financial centres supporting the transition towards the financing of a more sustainable future. The bond will be listed on the Luxembourg Stock Exchange, the world's leading platform for green and sustainable bonds.

BCEE, BIL, BGL BNP Paribas, Société Générale and Deutsche Bank contributed to the transaction as joint lead managers.

Finance Minister Pierre Gramegna comments: 'The huge success of this first issuance of a sovereign sustainability bond by a European country proves that Luxembourg has put in place a credible and comprehensive framework for sustainable finance and underlines the potential of this new category of sovereign bonds, of which Luxembourg is the pioneer. Both the significant excess demand and the very favorable interest rate reflect investor confidence in Luxembourg, one of the few 'AAA' rated countries.'

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