Navigating sustainable finance (part 2)
A conversation with BIL
In an age of rapid change, sustainability has become an increasingly important issue, and finance has a crucial role to play in driving the transition towards more sustainable models. As a stock exchange, we understand the pivotal role we play in building capacity and helping other institutions tap into the full potential of the market.
To explore the ways in which banks can contribute to this ever-growing market, we sat down with two seasoned experts from Banque Internationale à Luxembourg (BIL): Xingshi Guo, a Business Developer who attended our LGX Academy courses, and Olivier Habay, the Head of Long Term Funding, who oversaw the listing of the bank’s green bonds.
In part two of this interview, Head of Long Term Funding Olivier Habay talks us through the Green Bond Framework of BIL, that our LGX experts helped create, and shares his views on the future of the sustainable bonds market.
In 2022, BIL issued two green bonds listed on the Luxembourg Stock Exchange and displayed on LGX. What prompted you to issue green bonds?
Olivier Habay: BIL was the first bank in Luxembourg to set up a Green Bond Framework dedicated to the issuance of green bonds, and we implemented this framework with a clear commitment to support the growth of the sustainable finance market.
This new financing solution has many benefits. It enables us to have a direct impact on the transition to a low-carbon economy by offering our clients access to investments supporting a transition to an environmentally sustainable future. Finally, it sends a strong message to the market about our sustainability strategy and aspirations while engaging in a closer dialogue with a wider investor base.
The announcement of our Green Bond Framework immediately triggered interest from international institutional investors. Our first green bond issued was denominated in JPY, quickly followed by several private placements.
In close cooperation with our sales force anticipating a strong demand for sustainable products, we decided to offer green bonds dedicated specifically to our retail network. The first transaction was met with undeniable success. We replicated this with a similar proposal in 2023 and all records have been broken with a subscription of EUR 65 million for a single tranche targeting retail investors.
Could you tell us a bit more about what they finance, as well as the metrics you use to measure the impact?
Olivier Habay: Our green bonds help support sustainable housing development in Luxembourg. All the funding raised will be allocated exclusively to the financing of energy-efficient residential housing in the Grand Duchy and consequently contribute to the overall reduction of CO2 emissions in the country.
An independent consulting firm has been commissioned by BIL to define solid eligibility criteria for the housing units that will be financed. Their analysis is available on our website as well as an impact report assessing the energy and carbon emissions savings based on the assets potentially eligible in our portfolio. An allocation and impact report detailing the carbon and energy savings will be published annually on BIL’s website.
How did you select the projects to be financed by the bonds?
Olivier Habay: In Europe, buildings account for 40% of the energy consumed and 36% of energy-related direct and indirect greenhouse gas emissions. It is therefore clear that the real estate sector has an important role to play in achieving the carbon emission reduction objectives set by the Paris Agreement. The selection process of eligible assets has been determined to contribute to the EU Taxonomy environmental objective n°1 “Climate Change Mitigation”.
How do you see the sustainable bond market evolving in the future?
Olivier Habay: Our experience definitively confirms that there is strong interest and commitment from investors to increase their exposure to the sustainable segment. We are confident that this market will continue to perform and offer a stable source of liquidity for the issuers.
What advice would you give to companies that are considering this financing option?
Olivier Habay: It is of the essence to spend some time during the preparatory phase to collect the opinions from various experts to properly calibrate the scope of the framework. The return on the time invested is nevertheless quickly made up considering the number of opportunities that such a tool is offering.
Why did you choose to display the bond on LGX? What was the added value for you as an issuer?
Olivier Habay: To design our Green Bond Framework, we worked in close cooperation with sustainability experts from LGX. This cooperation helped us to determine the optimal strategy and define the main features of our Green Bond Framework.
The display on LGX, the world’s leading platform dedicated exclusively to sustainable finance, strengthens the relevance and credibility of our green bond issuance activity.
Written by Lorraine Bedo
