London Stock exchange launches Consultation on Proposed Developments to its Sustainable Bond Market

As part of London Stock Exchange’s ongoing commitment to the development of sustainable financing, we are in the process of consulting on developments to our sustainable finance offering in Debt Capital Markets. In particular we invite feedback on:

  1. Creation of a Sustainable Bond Market: we propose bringing together LSE plc’s  current Green Bond segment, with new segments for “use of proceeds” and “Certified issuer” instruments as below, into one comprehensive Sustainable Bond market.
    1.1 Creating dedicated new segments for Social and Sustainable bonds: LSE plc proposes introducing dedicated segments for Social and Sustainable bonds, in addition to its current Green Bond Segment. This would enable investors to distinguish such bonds based on their framework and use of proceeds.
    1.2 Introducing a new segment for instruments issued by “Certified issuers”: LSE plc proposes that those issuers who have obtained an independent certification or rating regarding the nature of their activities to be able to admit bonds to an “Certified issuer” segment.
    1.3 Introducing mandatory requirements for issuers regarding reporting post issuance: LSE plc proposes that issuers admitted to the Sustainable Bond Market commit to annual post-issuance reporting, which will then be published through our website.
  2. Considering the treatment of “transition bonds”: LSE plc supports the creation of a market standard set of criteria for the classification and labelling of “transition bonds”, most recently raised at ICMA’s Annual Green & Social Bonds General Meeting. With the aim to identify principles for a potential “Transition Bond segment”, we request for input on the following:
    2.1 Any Transition Bond segment must be separate from other Sustainable Finance segments, to provide differentiation and transparency for investors
    2.2 Transition bond requires require an issuer to provide investors: 
    - 2.2.1 A description of the company’s transition strategy
    - 2.2.2 The transition framework and use of proceeds of the bond, in the context of executing the strategy, with independent third party certification that verifies the link to global standards such as the Task Force for Climate Related Financial Disclosure (TCFD), Transition Pathway Initiative (TPI) or Science-Based Targets; and
    - 2.2.3 The ex-post impact of the deployment of the proceeds on the transition pathway, with on-going reporting.
    2.3 It would be desirable if some or all of these elements were supported by an independent evaluation against a framework that could be consistently applied.

Background

Sustainable investment continues to develop and grow as an asset class. More than $30 trillion in assets under management globally are now linked to sustainable strategies. Investors with $86 trillion of assets have signed up to the UN Principles of Responsible Investments.

It is now increasingly important for companies and investors to manage physical and transition risks associated with a lower carbon economy, and to articulate how their strategies create impact in the wider economy. It is also the responsibility of systemically important Financial Market Infrastructures (FMIs), such as London Stock Exchange Group (“LSEG”), to offer appropriate services that support companies to raise capital to implement their sustainability strategies, and allow investors to channel savings through such instruments.

LSEG offers a choice of listing venues for green, social and sustainable bonds through London Stock Exchange (“LSE plc”) and Borsa Italiana. LSE plc currently offers dedicated services for sustainable financing across asset classes, covering fixed income instruments (LSE plc was the first global exchange to launch dedicated green bond segments in 2015), companies, investment funds, ETFs and other instruments. Borsa Italiana offers a developed market for fixed income, with a strong bond investment culture and retail participation. LSEG also offers trading platforms with a range of execution mechanisms to promote liquidity in green bonds – for example, MTS for European Corporate & Sovereign green bonds. Through FTSE Russell’s industry-leading data and ratings for ESG, Carbon Emissions and Green Revenues, LSEG can provide investors confidence in the underlying credentials of issuers. LCH, one of the largest global CCPs, supports green bonds through eligibility for use as collateral. Given the breadth of its product offering, LSEG is well placed to drive the development of sustainable financing globally.

The market for green bonds has developed rapidly since launch with a range of “use of proceeds” instruments now available, for example social and sustainable bonds, issued under global principles such as the ICMA’s Green & Social Bond Principles. New regional principles have also taken shape. Investors have also indicated an appetite LSE plc to take a more active role in ensuring that issuers report use of proceeds under their frameworks on a regular basis. At the same time, the market is now recognising those issuers whose businesses are anchored to sustainable activities as a whole, and those issuers operating in sectors that not considered “green”, but who seek to manage their climate footprint and impact for the longer-term. In these instances it may not be appropriate for them to issue “green bonds”.

Consultation Documents

Please see the full consultation paper and response form available to download.

Responses are welcome electronically by emailing bonds@lseg.com, no later than 30 September 2019.