Lexology GTDT - Financial Tools

Equity funds and loans

Does your jurisdiction regulate equity funds or other financial tools such as loans designed to scale up companies with social or environmental objectives? Even if not expressly regulated, are there venture funds specifically focused on investing in purpose-driven companies?

Venture capital funds represent 10 per cent of the Luxembourg regulated and unregulated funds. Luxembourg venture capital funds are not specifically regulated, except from the application of the EuVECA Regulation (Regulation (EU) No. 345/2013 of 17 April 2013 on European venture capital funds), which does not specifically promote the social or environmental objective of the funds.

As venture capital funds invest in early-stage companies, they are more likely to invest in companies with ESG performance.

Social entrepreneurship funds domiciled in Luxembourg are regulated by the European Social Entrepreneurship Funds (EuSEF) Regulation (Regulation (EU) No. 346/2013 of 17 April 2013 on European social entrepreneurship funds), which provides a voluntary framework and sets requirements for funds wishing to use the EuSEF label. At present, one Luxembourg domiciled fund qualifies as a EuSEF.

Law stated - 05 October 2021

Outcomes funds

Does your jurisdiction regulate ‘pay for success’ investing models such as outcomes funds? Apart from specific regulation, are any of these mechanisms in force or in progress in your jurisdiction?

Pay-for-success investing models or outcomes funds are not regulated as such in Luxembourg.

Pioneer impact funds domiciled in Luxembourg provide a model in which some investors (usually public investors) bear more economic risks than others (usually private ones); however, these are not pay-for-success models as such.

Law stated - 05 October 2021

Social and development impact bonds

Does your jurisdiction regulate ‘pay for success’ investing models such as social impact bonds and development impact bonds? Apart from specific regulation, are any of these mechanisms in force or in progress in your jurisdiction?

Social impact bonds and development impact bonds are not regulated as such in Luxembourg; however, the Luxembourg Stock Exchange provides a framework to list specific purpose bonds that qualify under different categories: green bonds, social bonds, sustainability bonds, sustainability-linked bonds and Chinese domestic green bonds. Those bonds must meet specific requirements and may include pay-for-success models, such as the social impact bonds model.

Alongside common social impact bonds, with a pay-for-success mechanism, Luxembourg is developing its own framework of social and impact bonds. On 2 September 2020, the government launched a sustainability bond framework, which allows the issuance of social bonds in which an amount equal to the net proceeds will be exclusively used to finance eligible expenditures falling within the eligible social categories.

Law stated - 05 October 2021

Crowdfunding

Does your jurisdiction regulate crowdfunding initiatives aimed at scaling up companies with social or environmental objectives?

From 10 November 2021, crowdfunding initiatives in Luxembourg are regulated by Regulation (EU) 2020/1503 of the European Parliament and of the Council of 7 October 2020 on European crowdfunding service providers for business. At present, it does not specifically target crowdfunding initiatives aimed at scaling up companies with social or environmental objectives.

Law stated - 05 October 2021