On 9 November, the Luxembourg Stock Exchange (LuxSE) co-organised a side event with the Global Green Growth Institute (GGGI) at the EIB & BENELUX pavilion at COP27 in Sharm El-Sheikh, Egypt.
During this event, market experts and representatives of the public sector from Luxembourg and Africa explored how Luxembourg’s financial ecosystem can contribute to accelerating sustainable finance in Africa, focusing on cross-border cooperation, capacity building and technical assistance programmes.
Frank Rijsberman, Director-General of GGGI, set the tone of the event by explaining GGGI’s mission to help member countries access private funding through international capital markets, especially in regions that do not have the possibility to increase their sovereign debt funding.
In her pre-recorded message, LuxSE’s CEO Julie Becker then insisted on the need for a ‘just transition’ to tackle the disparities in the development of sustainable finance across the world. Arguing that emerging markets are the ones in need of the most funding, Ms Becker urged investors to help finance the transition in these regions that contributed the least to the climate crisis but suffer the most from its direct consequences.
Next on stage was a panel of experts, moderated by LuxSE’s Head of Sustainable Finance Laetitia Hamon, who led a discussion on the importance of climate finance in Africa, raising questions about the just transition, the need to keep supply chains and SMEs in mind, the role of capital markets and international cooperation, as well as how financing gender equality will help the region move forward in the sustainable finance sphere.
Edoh K. Amenounve, Director-General of Bourse Régionale des Valeurs Mobilières (BRVM) and President of the African Securities Exchanges Association (ASEA), advocates increasing Africa’s competitiveness and attractivity by creating a larger continental capital market. The African Exchanges Linkage Project (AELP) aims to integrate the trading and information systems of seven African countries to bring liquidity to the market and facilitate public and private issuances in order to accelerate the economic development of the region.
Moreover, cooperation between local and international market players will foster the growth of African capital markets and support market players in building the capacity needed to attract more private capital flows to local sustainable projects. In this respect, Mr Amenounve mentioned the recent Memorandum of Understanding signed by the BRVM and LuxSE aimed at enhancing the sustainable finance market in the West-African region, advocating for dual listings between Africa and Luxembourg and strengthening sustainable finance education through the BRVM Academy with the support of the LGX Academy. In the absence of strong capacity building programmes, Mr Amenounve argued that Africa will not be able to build a competitive financial ecosystem that can match other, more developed regions of the world.
Al-Hamndou Dorsouma, Director and Manager for Climate and Green Growth Division at the African Development Bank, added that capacity building will also help local actors address the current risks of investing in Africa, and therefore shift the narrative towards the opportunities of the market. As Africa's governance and regulatory framework specific to capital markets are yet to be defined, developed countries have a role to play in supporting local governments as they strive to design and implement such regulations and policies. Many sectors, such as agriculture, water management and accessibility, infrastructure or technology, also represent major opportunities for public and private investors. Despite the undeniable risks, solutions exist and need to be better communicated.
Building on the topic of opportunities to support Africa’s transition, Nancy Saich, Chief Climate Change Expert at the European Investment Bank (EIB) and former Rapporteur of the EU Platform on Sustainable Finance explained that many emerging markets are not yet at the stage of setting net zero goals. First, they must move away from projects and processes that significantly harm the climate, and they need guidance from international market players to do so. In Africa, for instance, current concerns related to supply chains need to be factored in when it comes to financing the transition (e.g. agriculture and water activities).
Ms Saich further argued that the conversation should go beyond climate-related concerns and focus on mobilising capital flows for a just transition, fostering not only the greening of the economy, but also the economic development of emerging countries. While the discussions often revolve around large corporates in hard to abate sectors, most companies in the supply chain of such corporates are small and medium-sized enterprises (SMEs), largely financed by bank lending and that are family-owned businesses. That significant part of the market also needs support to understand how to transition and become resilient.
Focusing on the role of Luxembourg in cross-border cooperation, Virginie Gilbert, Development Cooperation Officer at the Luxembourg Ministry of Foreign and European Affairs explained that emerging market development is a priority for the Luxembourg Government. While 1% of Luxembourg’s GNI goes to official development aid, several Ministries are working on initiatives and developments to take further steps towards this common goal. Ms Gilbert noted that strengthening their cooperation while ensuring national coherence and optimising the impact is at the top of their agenda.
With an increase in private capital flows mobilised, and more and more new financial instruments that can be leveraged to reach the United Nations Sustainable Development Goals (SDGs), the Luxembourg Government is focusing on multi-stakeholder partnerships and public-private initiatives.
The Luxembourg Government launched a new strategy last year, aimed at encouraging the greening of the financial sector, identifying new financial instruments and promoting the expertise of Luxembourg’s market players in sustainable finance. The strategy also includes the topic of gender equality in all their actions, as climate change is not gender neutral.
Since May this year, gender-focused bonds are flagged on the Luxembourg Green Exchange (LGX) to help investors identify sustainable bonds that contribute to the empowerment of women and girls. The African Development Bank has brought to LGX several gender-focused bonds and has been involved in the development of gender finance for several years. Mr Dorsouma added that gender considerations are a critical aspect of the bank’s operations in enabling the transition in Africa.
Following the expert panel, Chiara Caprioli, Senior Business Development Manager and Sustainable Finance Expert at LuxSE, took the stage to explain how stock exchanges can support the development of capital markets in Africa, highlighting the opportunities of dual listing, capacity building and education. Ms Caprioli insisted on the opportunity exchanges have as market infrastructures to scale up the sustainable debt market while building more integrated domestic and international resilient sustainable capital markets.
Wrapping-up an insights-packed event, Laetitia Hamon announced that LuxSE has officially committed to increase its collaboration with GGGI and participate in the implementation of GGGI’s programmes in developing countries, through capacity building and by advocating for more sustainable investment solutions.
Frank Rijsberman also announced a new global programme which is about to be established, jointly funded by the Luxembourg Ministry of the Environment, Climate and Sustainable Development, the Ministry of Finance and the Ministry of Foreign and European Affairs, in partnership with the GGGI, that aims at scaling up sustainable finance through technical assistance to governments, stock exchanges and other market players in emerging countries.