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.