Luxembourg for Finance (LFF) is the Agency for the Development of the Financial Centre. It is a public-private partnership between the Luxembourg Government and the Luxembourg Financial Industry Federation (PROFIL). Founded in 2008, its objective is to develop Luxembourg’s financial services industry and identify new business opportunities.
Giovanna Bassani, Secretary General, Luxembourg Financial Industry Federation (PROFIL), Luxembourg
The Covid-19 crisis has demonstrated how all our lives can be disrupted by a single global event. Hopefully, the impact of the pandemic on our economies will convince us of the need to take other global risks more seriously, and to take action while we still can. A series of major climate change events has the potential to wreak even greater damage on our economies and societies.
Luxembourg is leading the drive to increase the total level of funds in sustainable investments
The COP21 agreement in Paris in December 2015 to limit global warming to well below 2 degrees Celsius above pre-industrial levels requires capital raising on an unprecedented scale to finance the transition to renewable and lower carbon energy sources, as well as projects to mitigate the effects of climate change. It has been estimated that between five to seven trillion dollars will be needed. This level of investment cannot be sustained by the public sector alone, but will require a significant mobilization of private funds too. To that end, new financial products will have to be developed. Luxembourg is leading the drive to increase the total level of funds in sustainable investments from the billions to the trillions of dollars or euros.
While it remains a small part of the overall financial services market, the growth in green financial products has been remarkable. Market trends show that this is not just a fad: the transition towards environmentally sustainable activities and the mainstreaming of Environmental, Social, and Corporate Governance (ESG) investment values more broadly are set to continue and increase in intensity, driven by a generational shift, as well as by institutional client demand. Several studies have also shown that firms with clear ESG strategies have proven more resilient in the Covid crisis. Firms which are committed to ESG goals also show enhanced financial performance. The clarity of vision and governance that underlies such an ESG strategy, just as with firms which have greater diversity certainly pays off. Increased regulatory scrutiny will also contribute to accelerating this trend.