The world is grappling with social and environmental crises. In recent years, extreme weather events fueled by climate change — ranging from devastating wildfires and torrential rains to droughts and floods — have spared no corner of our planet. The consequences of these events are having catastrophic effects on biodiversity ecosystems, societies, and economies. In December this year, at the COP28, countries and other stakeholders will conduct the global stocktake, the first assessment of global progress in implementing the 2015 Paris Agreement.
Scientists and civil society organizations have long advocated for meaningful and immediate actions to address this situation. Similarly, forward-thinking financial institutions and corporations have joined various initiatives to drive change within their sectors. Multiple public bodies have also developed frameworks to establish a new level playing field with sustainability at the forefront. Against this backdrop, the Sustainable Development Goals of the United Nations, the Paris Agreement, the EU Action Plan on Sustainable Finance, and the European Green Deal remind us that a paradigm shift is needed.
As per what we can initially observe, the progress achieved thus far falls short. Additional efforts are needed at all levels and across various industries worldwide. In the context of the financial sector, sustainable finance — defined as the integration of environmental, social, and governance considerations into investment decisions — is crucial for financing the urgent transition toward sustainability. This transition is not a choice but a necessity to ensure a just, sustainable, and inclusive future.
Some key takeaways from the report
- ESG fund AuM represents 67.3% of Luxembourg UCITS assets
- 59.1% of ESG UCITS assets belonged to funds that only applied the ESG Exclusions strategy
- Article 8 funds represent 43% of Luxembourg-domiciled UCITS funds
- 57% of the Luxembourg-based entities fulfill the SFDR’s obligation on PAIs
- 42% of Luxembourg’s Super ManCos adhere to at least one of the three initiatives or tools
ESG fund AuM represents 67.3% of Luxembourg UCITS assets
Notwithstanding the economic uncertainties and market turbulence in 2022, Luxembourg-domiciled ESG funds reached EUR 2.8tn in assets by the end of June 2023, rebounding from the previous year. Notably, they constituted 4,814 out of the 9,761 active funds in Luxembourg and accounted for approximately 67.3% of the country's overall UCITS fund AuM by the close of Q2 2023. This underscores how firmly sustainable finance has taken root in the Luxembourg fund industry.
59.1% of ESG UCITS assets belonged to funds that only applied the ESG Exclusions strategy
From these, 72.8% applied at least three exclusions, predominantly to the weapons, tobacco, and fossil energy sectors, which is in line with last year’s observations. The vast majority of ESG Involvement funds (82%) strictly adhere to a single sub-strategy. Notably, the Best-in-Class and SDGs sub-strategies were the most common within the ESG Involvement cluster, representing 37.7% and 37.5% respectively. On the other hand, Microfinance was the least common sub-strategy, representing only 2% of ESG Involvement funds.
Article 8 funds represent 43% of Luxembourg-domiciled UCITS funds
Funds reporting as per Article 8 represent 43% of Luxembourg-domiciled UCITS funds as of end-June 2023, an increase from the 34% recorded in June 2022. In contrast, funds under Article 9 make up 5% of the total UCITS funds, compared to 6% in June 2022.
- The rise in funds reporting under Article 8 is in line with Europe-wide trends and is primarily caused by the conversion of Article 6 funds, the launch of new Article 8 funds in the past year, and the shift of Article 9 funds to Article 8 funds.
- The proportion in terms of AuM of ESG Involvement funds reporting under Article 9 compared to Article 8 decreased from 43% in Q2 2022 to 20% Q2 2023. This reflects the wider shift from Article 9 to Article 8 disclosure.
57% of the Luxembourg-based entities fulfill the SFDR’s obligation on PAIs
Among the 485 management companies (ManCos), banks, and insurance companies analysed, slightly more than half (57%) fulfilled the SFDR’s "comply or explain" obligation in relation to reporting on the Principal Adverse Impacts (PAIs) of their investment decisions on sustainability factors. Whereas most sampled entities (35%) published a declaration not to report, 109 (22%) published a PAI report. Additionally, 180 entities (37%) did not manage to meet the reporting or declaration requirements. Overall, PAI reports are highly heterogeneous, with entities designing their own reports without referring to a standardised methodology across industries.
42% of Luxembourg’s Super ManCos adhere to at least one of the three initiatives or tools
A relatively small proportion of Luxembourg-based firms adhere to one of the following climate initiatives or tools: The Glasgow Financial Alliance for Net Zero (GFANZ), the Partnership for Carbon Accounting Financials (PCAF), and the Science-Based Targets Initiative (SBTi). Super ManCos, which are UCITS ManCos that are also appointed to manage an alternative investments fund, have the most overall adherences, with 42% adhering to at least one of the three initiatives or tools.
Contact us
Frédéric Vonner
Advisory Partner, Sustainable Finance & Sustainability Leader, PwC Luxembourg
Tel: +352 49 48 48 4173
Partner, Global AWM Market Research Centre Leader, PwC Luxembourg
Tel: +352 49 48 48 2191
