Luxembourg has long held an ambition to issue a green bond as a way to promote itself as a centre for green and sustainable finance. But for a country with a small population and budget, a green bond framework would be too restrictive.
However, a sustainability framework provides the flexibility to issue green, social and sustainable bonds. For smaller sovereigns considering issuing socially responsible debt, this will have a far bigger impact.
But that’s not to say the bigger sovereigns should not follow suit. Every sovereign will have social and sustainable expenditures alongside those concerning the environment, so why would they limit socially responsible issuance to just one pot? Social and sustainable aims are equally as important as green ones.
The timing could also not be better, with cash needed to support the coronavirus pandemic and investors lapping up socially labelled debt. Indeed, sub-sovereigns and local authorities should also consider such a move as almost much all of their financing would count as social or sustainable.
Up until now, green has been the flavour of choice for sovereigns seeking to brand themselves as socially responsible issuers. But now it’s time for them to broaden their horizons.