Business Review
Our financial year, which spanned from 1 July 2021 to 30 June 2022, was a very special one that started with a shift in the pandemic, where modern medicine allowed for a new normality and a feeling of optimism. Turbulent events - such as the war in Ukraine - began to impact us, mostly in the second half of our financial year, or compound post-COVID issues, with increasingly disrupted supply chains and a growing energy crisis as well as a very strong core inflation, especially in the US. This means we experienced the start of a complete paradigm shift in terms of monetary policy, which tightened quickly and sharply in all major economies.
Yet, despite these adverse impacts, we are pleased to report a double-digit 11% increase in our net revenue and that we exceed the half a billion turnover mark for our year ended 30 June 2022.
As a professional services firm in Luxembourg, this is a major achievement indicating the reach of our services on local clients, subsidiaries of international groups, as well beyond the local market.
Increase in Environmental, Social and Governance (ESG) regulation intensity:
The year 2022 saw an acceleration of European regulatory legislation, with a recent surge in regulatory momentum embedding ESG as a central tenet of the investment landscape.
Management Companies, financial reporting and sustainable investment products are a few categories with recent regulatory changes. The Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy are now in effect and used by companies and financial institutions. Fit for 55, the EU sustainability package passed on 14 July 2022, touches upon a broad set of policies, including carbon pricing, energy efficiency, taxation, land use, transport and renewables.
The integration of ESG factors into investment processes started in 2021. SFDR represents possibly one of the most transformational regulatory developments in the history of Europe’s financial landscape. In the last decade, ESG has gone from a trend to the biggest revolution in the European fund industry. European Green, Social and Sustainability (GSS) bond issuance also rose to between EUR 1.4tn and EUR 1.6tn and will account for nearly 50% of the total European bond issuance by 2026.
We predict that Europe will continue to maintain dominance in the global ESG sphere, with Luxembourg as a fund centre, and PwC Luxembourg as a major professional services provider for mutual and alternative funds. Our firm continues to have a central role to play in this new environment and that’s also why we regularly publish Thought leadership pieces to help clients leveraging ESG for their business.
In addition to maintaining our own ambitious sustainability agenda, we actively assist clients in the change with dedicated advisory and assurance services, and we adjust the core services we offer to address new standards. These changes not only impact our clients, but also PwC Luxembourg as a service provider and corporate citizen.
Significant market growth in ‘Alternatives’:
Alternative funds, so-called private markets, i.e. private equity, real estate, private debt and infrastructure investments, continue to be a major growth area, including an indirect growth driver for asset management, asset servicing and corporate banking in Luxembourg. PwC Luxembourg has fully anticipated and embraced this trend by creating a combined and dedicated industry team on this market segment in 2019.
The main trends for 2023 will be the reversal of interest rates (induced by the change in the geopolitical and macropolitical landscape) as well as the impact of ESG on investment decisions, where investors are engaged and have outlined it as a major criterion for them (double materiality). These are material changes and will impact the investment model of the alternative asset managers fundamentally. The realistic expectation is a slow down in the short to medium term. However, the long term future of the market segment remains robust and prosperous.
The needs and sophistication of the clients in this market segment are rising. In particular the focus on core services leads to the reconsideration of the value chain and outsourcing of tasks. PwC actively engages with its clients on this value chain transformation. We provide and continue to invest in a full range of technology enabled managed services solutions covering compliance, corporate secretary, accounting and reporting tasks.
A new era in digital transformation:
The pandemic changed the use of digital solutions overnight. The shift to digital service practices highlights a new challenge of how to create value through digital experiences.
This transformation impacts PwC Luxembourg on two levels: the transformation of our existing services in the dimensions of service level and the service delivery model as well as assistance to our clients in the digital transformation journey.
The firm has been investing in a team of digital experts spanning the various sub-dimensions of technology skills (e.g. Cyber security, ERPs, Infrastructure and Cloud) as well as firm application management and implementation (e.g.. Workday, Salesforce, Yardi, SAP). We assist our clients and provide digital solutions in the context of firm problems and needs that our multi-disciplinary teams assess and transform into tailored solutions.
All of the above dimensions, i.e. ESG and Digital, as well as our skilled business resources with a profound and deep industry knowledge of our client's businesses, do constitute our most fundamental key success factors in which PwC Luxembourg has invested and will continue to invest in the future.
