Sustainability in finance: The need for effective climate reporting and data management
RFA I 8:58 am, 5th September

In January 2020, the Luxembourg government launched a public-private body called the Luxembourg Sustainable Finance Initiative (LSFI). The mission behind the project was to raise awareness surrounding sustainable finance initiatives and to help promote their success. The body acts as a central entity and a direct point of contact for all finance actors pursuing sustainable projects. The goal is to be able to broaden the Grand Duchy’s sustainable finance strategy to ensure the country remains a global leader.
During its initial year of operations, the LSFI was
able to successfully map out the financial landscape in Luxembourg and draw up
plans to enhance its current strengths whilst also endeavouring to overcome
challenges.
Just a couple of weeks ago, a stakeholder assembly
gathered in Luxembourg under the LSFI to establish the immediate needs of the
finance industry. Leaders in sustainable finance attended and shared
information and best practices as well as exploring ways to overcome
challenges. Simultaneously with this inaugural meeting, the association also
announced it will be launching four cross-sectorial sustainable finance working
groups. These groups will cover Climate Reporting and Measurement, Education,
Data, and Innovation. The initiative
is set to start in October 2022 and will seek to find
finance-related solutions on a cross-sectorial level.
The need for good ESG data management
Luxembourg has always been a global leader with
regards to sustainability in finance. Sixteen
years ago seven organisations, government ministries, the European Investment
Bank and financial sector professionals came together in Luxembourg to create
the non-profit Luxembourg Finance Labelling
Agency, otherwise known as LuxFLAG. This organisation was dedicated to
determining responsible investment credentials and other instruments. The vision back then was
significant in terms of future focus. Fast track to 2022
and the country is truly a global pioneer in this field. Whilst the regulations
in the EU continue to play a vital role regarding standardisation
and disclosure, Luxembourg has been striving to achieve clarity on what makes
an investment sustainable or not. Working alongside an EU-wide classification
system, both businesses and investors are able to identify which investments
can be considered sustainable. Yet this system allows both investors and
managers to develop their own criteria and a set back to this is that there is
no single market definition of what a sustainable investment is. Where systems
are already subjective to investor criteria, having a good ESG data management
and governance system in place will empower firms in private equity and
financial services to better understand their performance with regards to
sustainability deliverables. In addition to this, a good ESG data management strategy will enable businesses to respond to any
issues at speed and deliver information to stakeholders in a timely and effective
manner.
ESG regulation is accelerating
globally, with the European Union’s Sustainable Finance Disclosure Regulation
(SFDR) pushing for greater disclosures. In addition to these efforts, the EU
has partnered with China on taxonomy classifications and regulators in Hong
Kong have increased their focus on climate reporting standards. In 2022,
companies worldwide are now under pressure to decarbonise their businesses in
order to exist and thrive in a low-carbon economy. Their strategy journey to net
zero will need to comply with regulatory requirements so their business can
keep on target and build a rapport with stakeholders.
Source: written by George Ralph, Global
Managing Director & CRO at RFA.
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