Lexology GTDT - Legal and policy framework
Guide on ESG and impact investing
In this section:
Legislation
Has your jurisdiction enacted any primary or secondary legislation addressing environmental, social and governance (ESG) factors in banking, finance and corporate law, or legislation addressing the pursuit of other non-financial objectives by companies and investors?
With the exception of a specific regime for companies pursuing a social or environmental purpose provided by the Law of 12 December 2016 establishing purpose-driven companies, no primary or secondary legislation has been enacted per se in Luxembourg in addressing those factors, other than the application of European regulations and the transposition of European directives into national law on this matter, in addition to guidelines and decisions issued by European authorities.
In this context, non-financial considerations by financial participants are governed by the Law of 23 July 2016 implementing the Non-Financial Reporting Directive (Directive 2014/95/EU of 22 October 2014). Disclosure requirements related to ESG factors are mostly governed by the Taxonomy Regulation (Regulation (EU) 2020/852 of 18 June 2020) and the Sustainable Finance Disclosure Regulation (Regulation (EU) 2019/2088 of 27 November 2019 (SFDR)), requiring financial market participants and financial advisers to disclose whether they consider the principal adverse impact on sustainability factors of investment decisions.
In addition, the Commission de Surveillance du Secteur Financier or (CSSF), which is the Luxembourg supervisory authority for the financial sector, plays a proactive role in ensuring that the banking and financial sector takes into account the relevant ESG legislative framework, by issuing useful guidance and other informative material. In this context, the CSSF published a circular on 21 June 2021 on the management of climate-related and environmental risks by all credit institutions designated as less significant institutions under the Single Supervisory Mechanism and all branches of non-EU credit institutions (Circular CSSF 21/773).
Law stated - 05 October 2021
Policy guidance and development
How would you describe the general level of policy guidance and development regarding ESG, impact investing and purpose-driven companies in your jurisdiction?
In recent years, Luxembourg has developed into the ultimate sustainable finance centre in Europe. Several initiatives have been launched over the years by the government, the private sector, various non-profit institutions, agencies and other authorities, all of them aimed at enhancing and further consolidating the edge that Luxembourg’s financial participants possess on ESG matters.
For instance, the government adopted the Luxembourg Sustainable Finance Roadmap in October 2018, drafted in partnership with the United Nations (UN) Environment Programme. This non-binding document sets Luxembourg’s vision in developing policies and guidance to further consolidate its position in Europe as the leader in ESG action.
A key actor in the ESG landscape and promotion of impact investing is the Luxembourg Stock Exchange (LuxSE). In 2016, the LuxSE set up the first Luxembourg Green Exchange, a platform offering a variety of sustainable finance instruments, including green bonds and social bonds. Over 50 per cent of all green, social and sustainability bonds worldwide are listed on the Luxembourg Green Exchange. The LuxSE sets standards for issuers and issues guidelines such as the Guide to ESG Reporting to help issuers integrate ESG considerations into their financial activities.
Another recent contribution to the development of policies regarding sustainable finance is the launch of a sustainablebonds framework on 31 August 2020, which allowed the government to issue the first sovereign sustainability bond in Europe.
Law stated - 05 October 2021
