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Sustainable Finance
What you should know about Sustainable Finance and why it matters…
In 2015, the COP 21 Agreement was signed by 185 countries in Paris marking a turning point for sustainable finance. Since then, various stakeholders around the world, such as governments, regulators, international organisations, private institutions, etc., have joined hands with the financial industry in the fight against climate change to contribute towards a sustainable future.
Following the COP 21 Agreement, the European Commission developed an Action Plan on Financing Sustainable Growth in 2018. The plan focuses on three main pillars:
- capital flows towards sustainable investment,
- management of financial risks, as well as
- fostering transparency and long-termism in financial and economic activity.
The commitment to sustainability, as well as the need to develop sustainable financial markets, - e.g. through new products or services, new client and market segments - is increasingly recognised. This is also the result of the rapid changes the financial sector has seen in the past decade. Many of the industry’s traditional and previously successful business models have reached the end of their lifecycle and their profitability is decreasing steadily. They are giving way to newer business models and, based on market insights, sustainable finance might be one of the most important trends - with the potential to provide at least some answers for the currently indistinct future of the sector.
So what exactly is Sustainable Finance? Sustainable finance is any form of financial service, which integrates specific non-financial criteria. For instance, environmental, social and governance (ESG) factors are more often integrated in decisions on investment opportunities, refinancing sources or choosing business partners and in the creation of new products and services. Sustainable finance aims to create a lasting environmental, social and governance benefit for both clients and society.
Luxembourg has developed into an international platform for sustainable, social and green finance
The latest Global Green Finance Index (GGFI) shows that Luxembourg ranks among the top green financial centres worldwide and substantially contributes towards a sustainable global economy. Forecasts made by GGFI indicate that Luxembourg’s sustainable finance offerings will improve significantly in the short to medium term.
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