What is its role and what is the relationship between Luxembourg as a financial centre and the climate?
Luxembourg has been a forerunner in sustainable finance for many years, and the financial centre was one of the first to develop and set down in writing the concepts of sustainability through a strategy: the Sustainable Finance Strategy (LSFS). In 2007, the world's first green securities were issued by the European Investment Bank (EIB) on the Luxembourg Stock Exchange. In 2016, the Luxembourg Stock Exchange launched the Luxembourg Green Exchange (LGX), the first platform dedicated to sustainable securities.
The LGX currently lists more than half of the world's green bonds. As a financial centre with so much experience in the field, Luxembourg can exert a major influence on the development of sustainable finance worldwide. Even if it is not immediately obvious, sustainable finance is a significant tool for promoting a greener economy. The NECP can be updated at any time to reflect the current situation and EU requirements. The update of the NECP 2021-2030 will be completed by 2024.
In simple terms, we could say that sustainable finance involves not only taking into account financial returns and security, but also ensuring that companies' investment and financing decisions are also based on social, environmental and governance criteria.
Anyone who normally goes to the bank to invest their money is looking out for risk management and potentially good financial returns. By using sustainable finance, customers can now also contribute to environmental and climate protection. The money invested by customers is used by financial institutions to invest in green businesses. In the case of green financial products, the money is only invested in companies and projects that contribute to environmental and climate protection and promote social factors, such as companies specialising in sustainable construction or eco-mobility, sustainable agriculture, innovative mobility projects and projects to protect species.
For a long time, sustainability did not play a significant role in finance, although there were isolated initiatives in this area even before 2015. But since 2015, with the adoption of the Paris Agreement and the UN's Agenda 2030 with its 17 Sustainable Development Goals, there has been a new international consensus that takes into account both financial returns and sustainability criteria at the economic, social and ecological levels. This, along with other indications that climate change makes changes in finance urgently necessary, has led to the exploration of new avenues at national and international level. Sustainable finance represents an opportunity to redirect global financial flows away from socially and environmentally damaging investments towards innovative and ecologically and socially sustainable projects, thereby making the economy fairer and more respectful of the environment.
In addition, various plans and strategies have been drawn up not only at national level, but also at European and global level, to implement the principles and objectives of the 2015 agreement. In 2018, a first step towards sustainable finance was taken with the EU Action Plan for Financing Sustainable Growth.
The plan is based on three pillars:
- redirecting capital flows towards sustainable investment,
- sustainability and risk management,
- promoting transparency and sustainability.
In 2018, the Luxembourg Sustainable Finance Roadmap was published by the Luxembourg government in collaboration with the United Nations (the United Nations Environment Programme, UNEP). This roadmap is intended to serve as a basis for defining a global strategy for sustainable finance in order to achieve the objectives of the international agreement, and sets out recommendations on how this can be achieved. These recommendations include the creation of an association to promote sustainable finance in Luxembourg.
Then, in 2020, the Luxembourg Sustainable Finance Initiative was launched. This is an association that brings together experts in sustainability and sustainable finance and acts as a coordination centre to bring together the various stakeholders in these fields. It is co-chaired by the Ministry of Finance and the Ministry of the Environment, Climate and Sustainable Development. In addition to coordination, other important tasks include moving Luxembourg forward in the field of sustainable finance, establishing the country as a centre for sustainable finance and promoting sustainable initiatives in the financial sector. To this end, the LSFI must develop a strategy in which the activities already implemented must be in line with the recommendations of the roadmap.
The Luxembourg Sustainable Finance Strategy (LSFS) was developed and launched in 2021 by the Luxembourg Sustainable Finance Initiative (LSFI), representatives of the government, the Luxembourg for Finance (LFF) agency for the development of the financial centre, and the Conseil supérieur pour le développement durable (CSDD). The first part of the strategy focuses on further integrating sustainability into the country's financial culture, encouraging institutions, investors, organisations and public service providers to continue along this path, and developing Luxembourg's role as an international centre for sustainable finance. The second part is an action plan for the LSFI. This association is to coordinate the implementation of the strategy and act as a central point of contact for all players and initiatives.
The LSFI action plan is based on three pillars:
1. Promotion and awareness-raising: i.e. the promotion of initiatives and the integration of sustainability into the Luxembourg financial sector.
2. Unlocking potential: by creating a platform for sharing knowledge and experience.
3. Measuring progress: collecting and analysing data on the financial sector to measure progress in integrating sustainability.
The objectives of these pillars are set as part of this strategy. Through these objectives, the work of the LSFI and the development of sustainable finance are regularly reviewed and, if necessary, improved.
In developing the strategy, care must be taken to ensure that the recommendations and targets are consistent with existing sustainability plans and agreements, including the Coalition Agreement 2018-2023 and the Sustainable Development Plan, as well as the Integrated National Energy and Climate Plan (INECP). In addition, the strategy must contribute to achieving the international objectives of the 2030 Agenda and the Paris Agreement.