The Luxembourg Stock Exchange holds a central position in the country's financial ecosystem, which goes along with the responsibility to bring innovation and to act as a change driver in digitalization and sustainable finance practices. These are the reasons why LuxSE was one of the first major financial institutions to migrate its entire technical infrastructure to the cloud and to take a pioneering role in listing security tokens, say CIO Laurent Pulinckx and Head of Sustainable Finance Laetitia Hamon. 

LuxSE CEO Julie Becker recently highlighted the increasing role that the digitalisation of capital markets is expected to play in the development of sustainable finance. How do you expect this to take shape over the coming years? 

LH: Sustainable finance has been on the agenda of the Luxembourg Stock Exchange for some time now. It has been 6 years since we created our platform for sustainable instruments, the Luxembourg Green Exchange. It is now clear that sustainability is a topic that will become increasingly important. People understand more and more the role it has to play in the real economy. 

In my opinion, the same applies to digitalisation. These two major trends need to be addressed together. They present similar challenges, because in the past these two topics have been addressed as silos within specific departments. They are in fact  cross-cutting matters and both require training not only for the entire staff of the company but also for all the stakeholders with whom we interact. 

When it comes to digital-backed sustainable finance, the applications we are seeing emerge revolve around impact data. This may include, for example, proving that financing a given project has a positive environmental or social impact. This can be done today by measuring CO2 emissions at source or for example by using satellite data. This information can then be digitised so that everyone can have access to it, across the entire value chain and all financial actors. 

LP: At the Luxembourg Stock Exchange, digitalisation is designed along two axes: the improvement of the user experience, both internal and external, and the digitalisation of assets through tokenisation. In January 2022, LuxSE admitted three security tokens issued by Societe Generale on its Securities Official List. These are two areas to which we pay particular attention and in which we are very active. We have also played a pioneering role in these two areas. 

The Luxembourg Green Exchange – LGX - is reputed to be the world’s leading platform for green, social and sustainable securities. LuxSE and its LGX team are constantly working to develop the platform, facilitate sustainable investment and contribute to accelerating the green transition. In this context, what roles are the LGX Academy and the LGX DataHub called upon to play? 

LH: We realised, even before 2020, that there was a lot of sustainability data - on countries, companies, the environment, social issues, etc. - on the market. But this data was disparate, scattered over many documents, presented in different formats, and therefore difficult to extract. In short, despite the volume of data available, it was difficult to use and compare it in a meaningful way. However, the European regulation on sustainability-related disclosure in the financial services sector requires financial players to report on this data. At LGX, we understood that the best way to address this challenge would be to develop a central database that would bring together data on green, social and sustainable securities so that investors could be confident that they were making the right decisions against these criteria. 

We now have a platform, LGX DataHub, which includes sustainability data not only on securities listed on the Luxembourg Stock Exchange but anywhere in the world, representing a global coverage of over 8,000+ green, social, sustainability and sustainability-linked bonds. The purpose of this platform is to allow users to extract data, analyse and compare the impact of different securities and  make more informed and sustainable investment decisions. 

We also realised that if we wanted to help shift capital flows to green, social and sustainable projects, it was essential that everyone understood what we were talking about and, above all, knew how to proceed. In May 2020, we therefore set up the LGX Academy, which enables financial players in Luxembourg and abroad to familiarise themselves with the basics of sustainable finance, as well as with the regulations, standards and products, all illustrated by numerous practical cases. So far, we have trained around 300 professionals representing banks, other stock exchanges, professional services firms, asset management companies, etc. 

LP: Using innovative technologies and agile methods allows us both to accelerate the launch of new products and to adapt the model in line with regulatory changes. This is made possible by the thorough market knowledge of our functional teams but also by the maturity of the relationship between them and the IT teams. This requires daily exchanges in order to remain aligned with each other, understand changes and develop solutions quickly. 

According to a recent IDC report1, the continued adoption of cloud computing could prevent the production of up to one billion metric tons of carbon dioxide from 2021 to 2024. Apart from these direct effects towards greener IT operations, what are the wider benefits of digitalisation, in light of your own experience? 

LP: It is clear that digitalisation is part of the solution in the struggle to decarbonise the economy. The electricity consumption generated by a videoconference, for example, is much less than the amount of CO2 that would have been emitted to hold a physical meeting with the same participants. 

In concrete terms, three factors need to be considered: infrastructure, application and user behaviour-induced consumptions. 

In terms of infrastructure, we are closely monitoring the efforts made by Microsoft - our cloud services provider - to make technologies more CO2-efficient. In 2021, a staggering 5.8 gigawatts of renewable energy was used by Microsoft in their cloud systems. 

In application development, the next step will be to bring power consumption - and therefore CO2 production - into the way applications are coded, just as security and cost became a part of our practices a few years ago. There are several ways of coding applications, some of which are more energy-efficient than others. From next year, we will start to train our developers on this issue. 

Thirdly, we have already started to work on user behaviour by regularly publishing tips and tricks on how to reduce energy consumption. This includes, for example, avoiding storing the same file multiple times or sending emails with large attachments. We are confident that linking CO2 emissions more closely to transactions will have a significant impact on user behaviour. Personally, I am convinced that in the future, businesses and organizations will have to pay more attention to their digital environmental and social responsibility, which involves implementing awareness and training policies that leave no one behind. 

LH: I can attest to the fact that since we have been using Microsoft's SharePoint cloud service, we have made a habit of sending links with our emails rather than large files. We have also reduced the number of historical versions of saved files. These are small improvements that we are implementing gradually and that allow everyone to understand that we can be more sober in our digital behaviour. But it really makes a difference. 

How does the ongoing wave of digitalisation at LuxSE help improve the services you deliver ? 

LP: At LuxSE, digitalisation has several objectives. One of these objectives is to create new products, such as the LGX DataHub platform. The aim is to be able to quickly develop and test products that meet the needs of the market. The second focus is on improving user experience. For example, the interface of our e-Listing service allows issuers to connect directly to our systems either via API or web page. The platform even offers,  – thanks to our partnership with UK-based start-up Origin  – a feature called listing in one click which is a fully automated process between the issuer and LuxSE. The third objective is to improve internal processes and make them faster, more efficient, and more transparent. 

LH: LGX was created in 2016, a few months after the Paris Agreement and the creation of the United Nations Sustainable Development Goals. Following these events, the reaction in Luxembourg was very quick, as is often the case when it comes to being flexible and innovative and contribute to new, global developments. . At LuxSE, apart from facilitating sustainable investment and accelerating the sustainable finance agenda, we have been very active in working groups, such as the European Commission's expert group on sustainable finance which led to the current action plan. It is this promotional effort in working groups, associations and the education system that has brought us to this point and explains why many other stock exchanges are following the path we have set out. LGX has received several awards from international organisations, including the United Nations Global Climate Action Award 2020 and the Stock Exchange of the Year award granted by Environmental Finance as part of the Sustainable Investment Awards 2022. 

Interview by Michael Renotte