Sustainable Finance

Public concern – a rise in public / investor concern for the environment and social equity leading to investors’ increasing desire to see their money ethically placed. Risk management – financial market participants themselves are coming to better understand the risks to investments and returns associated with ESG issues. These risks may be direct risks (e.g. the risk of climate-related flooding to real estate investments or the impact of changing regulations) or indirect risks (e.g. changing consumer preferences tied to ESG matters that impact demand for products). The early warning nature of ESG issue monitoring can also contribute to maintaining positive performance over the long term. Doing the right thing – we should not forget that many people working in financial services are driven to “do the right thing” for planet and for people. However, ESG investments are increasingly delivering superior returns and the accelerating flows to ESG investments can no longer be attributed to purely altruistic motives.  This is set to continue with economic growth at a European and Irish level being linked to achieving carbon neutrality by 2050, facilitated by a range of policy and regulatory instruments that seek to drive private sector capital flows to sustainable investments

As long ago as 2006, seven Luxembourg organisations – government ministries, financial sector professional bodies and institutions, and the European Investment Bank – created the non-profit Luxembourg Finance Labelling Agency[i] (LuxFLAG) to certify the responsible investment credentials of funds and other financial instruments. LuxFLAG’s initial focus was microfinance funds, then a little-known segment of the industry mostly concentrated in the grand duchy; today it has expanded its scope to a much broader range of categories including ESG, green bonds, the environment, and climate finance. One of LuxFLAG’s founder organisations, the Luxembourg Stock Exchange, has also played a ground-breaking role in the emergence of green and sustainable criteria as a key element of the capital markets. In 2007, it listed the world’s first socially responsible bond from the European Investment Bank, followed by the first security to be designated a green bond, issued by the World Bank. Development Of The Luxembourg Green Exchange More than a decade later, the exchange lists more than half of the world’s sustainable bonds and almost half of the green bonds. In September 2016, it launched the Luxembourg Green Exchange[ii] (LGX), a listing platform for securities aligned with the United Nations’ Sustainable Development Goals as well