Setting New Standards:
An Interview with Julie Becker of the Luxembourg Stock Exchange

November 2018

The word ‘standard’ may have different meanings in the dictionary.

It may have different connotations for different people. For Julie Becker of the Luxembourg Stock Exchange, standards are just what she does. With her background in law, Julie helped the Luxembourg Green Exchange establish some of the first real standards in the industry – changing the way green securities work forever.

You spent much of your career in Legal and Compliance departments. How did you find your way to sustainable finance?

I actually started my career as a young lawyer in the trading room of a Luxembourg-based bank. My career has revolved around doing business in legal and compliance-related fields, and sustainable finance is close to that. Sustainable finance is, in fact, compliance with a moral and ethical twist. What they have in common is the idea of responsibility, manifesting itself at a social and societal level. If a compliance officer makes sure that activities comply with the regulatory framework, a sustainable officer checks that the documents submitted by a green bond issuer, for example, comply with the guidelines of a certain sustainable framework.

It’s quite interesting to see the evolution of compliance in the financial sector. Twenty years ago, we started doing Know-Your-Customer checks to prevent money laundering and financing of terrorist activities. Ten years ago, with MiFID, we started looking at the risk profile of the investors. Today, not only do we have to know our clients, the source of their money and their risk profile, but also what their sustainability preferences are.

The Luxembourg Green Exchange (LGX) lists green, social and sustainable securities worth over 100 billion EUR. The setup of LGX marks the first time that a stock exchange required green securities to adhere to strict eligibility criteria. Why did the Exchange decide to make these best practices for green securities a mandatory entry requirement?

When we created LGX in 2016, the green bond market was gaining traction. In a context where there were no clear definitions of what ‘green’ means and where market best practices were applied on a purely voluntary basis, the challenge was twofold. On one hand, we had issuers who wanted more visibility and recognition of their efforts to provide additional information on their green bonds and, on the other, investors looking for more clarity and better information on the projects financed and their impact.

So, we’ve built the infrastructure to bring them together, but since there were no clear standards in the market, we were confronted with a new challenge: how to build confidence between issuers and investors. We are convinced that the only way to build trust is through transparency.

We have set the bar very high and encouraged issuers to go beyond it. When you have clear requirements in place and all issuers comply, investors have access to easily comparable data and financial instruments. This creates competition and a race to the top, which is beneficial for the market and its development.

Did you encounter any roadblocks to getting LGX off the ground?

There were no roadblocks as such, but it was a bold step to impose mandatory requirements in a market reigned by voluntary guidelines and no harmonized standards. We spent a lot of time talking with different stakeholders and trying to understand their needs, their challenges and their expectations.

We didn’t know what to expect after the launch. We’ve created LGX in 6 months and many thought it was just a wild idea. This is why we started slowly, one-step at a time – first, green bonds; six months later - social and sustainability bonds; and, in May this year, we launched a ‘window’ dedicated to socially responsible investment (SRI) funds.

Can you explain what the international green taxonomy is and why it matters for sustainable investing?

When we talk about ‘green taxonomy,’ we mean a classification of activities that enables us to understand what qualifies as ‘green’ and what doesn’t. It may seem a small detail, but it’s not. The lack of clarity as to what constitutes green finance activities and products (such as green loans and green bonds) can be an obstacle for investors, companies and banks seeking to identify opportunities for green investing. Taxonomy enables objective descriptions and comparisons, as well as the development of standards and labels to guide the choices of market participants.

In Europe, we’re already moving towards developing a common language. In its Action Plan on Financing Sustainable Growth, the European Commission made taxonomy its top priority and it has appointed a Technical Expert Group to work on it. The Luxembourg Stock Exchange is well represented within the group and we have always been involved in the discussions around taxonomy, because we believe it’s the backbone of any strategy aimed at mainstreaming sustainable finance.

How did Luxembourg come to take the lead in Europe in the field of green finance?

The same way it took the lead in the financial sector as a whole, with forward-thinking policies, flexibility and agility. This small country has an incredible capacity of seizing opportunities and leading the way.

Green finance was almost a no-brainer. Luxembourg already had the right assets - some 140 banks, EUR 4.2 trillion in assets under management and the headquarters of the European Investment Bank (EIB), the world’s largest issuer of green bonds. Luxembourg is the largest European fund domicile and the second largest fund center in the world after the US. In addition, over a third of responsible investment funds in Europe are domiciled in Luxembourg.

We have built on this strong foundation and now the country has a full toolbox dedicated to green finance: a green exchange (LGX), a fund-labelling agency (LuxFLAG), a climate finance accelerator, a Luxembourg-EIB climate finance platform and many more initiatives.

The Luxembourg Stock Exchange turned 90 this year. How has the exchange managed to stay influential for nearly a century? What do you think the next 90 years will bring?

LuxSE was founded in the same year that Alexander Fleming discovered penicillin and Walter E. Diemer produced the first bubble gum. It has grown from a local bourse for domestic companies, into the world’s leader in the listing of international debt securities and, as you know, the biggest platform for sustainable financial instruments.

We’ve had tough moments. We had great people too who had the vision to get us through and reach unimaginable milestones. Transparency and innovation are part of our DNA and I think this is how we’ve managed to stay influential for nearly a century.

We know that we must not rest on our laurels and just keep on with business as usual.

I don’t have a crystal ball to predict the future, but I do have a dream which is that 90 years from now, after having achieved the UN Sustainable Development Goals, our children and grandchildren will live and work in an entirely sustainable world.


Important Information

This document and information provided herein is for marketing and/or informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.  This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.  Investing involves risk including the risk of loss of principal.  All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The whole or any part of this report may not be reproduced, copied or transmitted, or any of its contents disclosed to third parties without State Street's express written consent.

2304907.1.1.GBL.RTL | Exp. 11.30.2019

State Street Corporation, One Lincoln Street, Boston, MA 02111-2900

© 2018 State Street Corporation - All Rights Reserved.