When you hear mention of Luxembourg, you immediately picture a tiny, rich country best known for its status as Europe’s most powerful investment management center as well as a global leader in inclusive finance. The country has recently launched its Sustainable Finance Strategy to add to the range of initiatives aimed at stepping up this status. Why does this matter? What objectives does it set? What is the expected impact? Check this out in the article below.
What is sustainable finance?
With the world still fighting the COVID-19 pandemic and learning its lessons, an increasingly greater emphasis has been placed on sustainability that focuses on climate protection and social responsibility which obviously calls for sustainable finance.
According to the Luxembourg Sustainable Finance Initiative, sustainable finance generally refers to the process of taking due account of environmental, social, and governance (ESG) criteria when making investment decisions. To put this another way, sustainable finance allows a shift from environmentally and socially unfriendly investments towards investments that help to make the transition towards a low-carbon economy, higher social responsibility, and better governance practices.
Luxembourg’s strategy
Created by the Luxembourg Sustainable Finance Initiative (LSFI), a not-for-profit association established upon the initiative of the country’s government, the Sustainable Finance Strategy was launched in February.
According to LSFI, “the strategy defines concrete actions based on the Luxembourg Sustainable Finance Roadmap recommendations, a document drafted in partnership with the UN Environment Programme Finance Initiative”. The strategy also comprises “the LSFI’s general action plan with the primary objective to support the financial sector in its transition towards sustainability and to further position Luxembourg as an international hub for sustainable finance”, LSFI’s press release read.
To meet these objectives, the strategy provides for three main pillars:
- Awareness and promotion
- Unlocking the potential of Luxembourg stakeholders in integrating sustainability into their business practices
- Measuring the progress of the financial sector in transitioning towards sustainable finance. To this end, the LSFI will put in place a special monitoring framework.
Expectations
With the launch of the strategy, Luxembourg officials voiced high expectations as to its potential to contribute to the fulfillment of the Sustainable Development Goals.
Participating in the virtual launch news conference, Pierre Gramegna, Luxembourg Minister of Finance, noted that the strategy was supported by the government, the Luxembourg Central Bank, and supervisory authorities as well as the private sector.
“It will further consolidate and enhance Luxembourg’s role as a European and global hub to shift billions to trillions in order to finance the Sustainable Development Goals and fight against climate change,” Gramegna said.
For her part, Carole Dieschbourg, Minister for the Environment, Climate, and Sustainable Development, pointed out the need for specific solutions to secure a sustainable future.
“A reduction of at least 55% of CO2 emissions by 2030 at the EU level, followed by global climate neutrality by 2050 at the latest, could limit global warming to 1.5°C. The LSFI strategy will bring forward solutions and opportunities to scale up action for a sustainable future,” the minister said.
Sustainability advisor of the LSFI, Nicoletta Centofanti, pointed out the body’s role in transitioning towards better ESG practices.
“Topics such as biodiversity loss were not on the financial sector’s radar in the past, and we see our role as helping the willing transition as smoothly and rapidly as possible toward a better social, environmental, and corporate governance,” Centofanti noted.
What of budget?
According to the Global Sustainable Investment Alliance (GSIA), sustainable investments rose by 34% in 2018 compared to 2016, reaching assets of over US$30 trillion. With the issue of sustainable finance being in the spotlight, this figure is expected to rise further.
LSFI has not yet stipulated a budget for implementing the strategy. However, it has been mentioned that, when rolling out its Action Plan, the LSFI will collaborate with all relevant stakeholders to find synergies for the benefit of developing sustainable finance in the Luxembourg financial sector and cementing Luxembourg’s international role in sustainable finance.
About LSFI
The LSFI was founded in January 2020 by the Luxembourg Government, Luxembourg for Finance, and the High Council for Sustainable Development, an independent advisory body to the Luxembourg Government. The idea of creating an association that would promote sustainable finance in Luxembourg dates back to 2018 when, in collaboration with the United Nations Environment Program, the Luxembourg Government published the Luxembourg Sustainable Finance Roadmap.
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