Lexology GTDT - Update and Trends
In this section:
Update and trends
What are the key recent developments, hot topics and future trends in your jurisdiction relating to social finance, purpose-driven companies and the impact economy in general? Are there any recent studies and initiatives to identify or quantify these market sectors? Are there any new or proposed regulations or taxonomies in this regard?
Luxembourg already holds the leading position in Europe in terms of sustainable funds products, with almost one-third of the assets managed by sustainable funds being domiciled in Luxembourg at the end of 2020.
The Luxembourg Green Exchange, which was created in 2016, hosts the largest market share of listed green bonds worldwide and offers quality and transparency to different sustainable financial instruments.
On 27 October 2020, the Luxembourg Green Exchange marketed the first social bond issued by the European Commission for support to mitigate unemployment risks in an emergency. Currently, 90 social bonds are listed on the Luxembourg Green Exchange, and this number continues to increase.
In 2019, the government launched the Luxembourg Sustainable Finance Roadmap and the National Plan for Sustainable Development 2021–2030, with the objective of implementing the 17 Sustainable Development Goals and providing the framework to develop a legal structure to achieve sustainable and social impact goals in the near future.
As a financial hub of the European Union, Luxembourg aligns with most European and international initiatives related to ESG integration in the financial sector, impact and social investments. Luxembourg actors constantly research, analyse and contribute to the development of policies to orient the financial market towards more sustainability and impact financing.
Law stated - 05 October 2021
Recommendations
Do you have any recommendations for legal models, fiscal treatment and public procurement in your jurisdiction in relation to social finance and purpose-driven companies? Do you see a need for regulatory intervention or is the market capable of self-regulation in these sectors?
Although the Luxembourg legislative framework is already proactive in developing ESG, sustainable finance and impact investing initiatives, more concrete guidelines issued by the financial authorities would be welcome, especially in relation to reporting and disclosures of information.
For instance, more guidance should be provided by the government on the management of purpose-driven companies governed by the Law of 12 December 2016 in relation to the extra-financial report that is required to be published every year, especially on performance indicators.
To achieve concrete results in shifting finance towards sustainability and social impact, private players of the financial sector must be supported by public actors. The burden and costs of reporting on environmental and social objectives should not be borne by each company alone.
Concrete support must also come from public authorities and actors to provide the private sector with:
- concrete guidelines on reporting and disclosure of information; and
- affordable tools to collect the relevant data in relation to their social or environmental activities that would generate a harmonised assessment of ESG performance. This could include the establishment of easily accessible platforms where computer and financial tools would be exchanged.
In addition, specific benchmarks adapted to the local, social and environmental landscape must be developed to increase the accuracy of performance and the non-financial impact of financial products, as well as to reduce riskmargin factors.
In this context, tax incentives are also key to encourage the private sector to promote environmental and social objectives in their activities. Although tax incentives for purpose-driven companies are already in place, similar benefits should be created for companies, asset managers and investment funds, integrating ESG and social purposes to their business or investment strategy.
Impact investment is a self-regulated sector that should not be overly legally framed as innovation is still needed to improve social and environmental impact; however, more guidance and reports on concrete achievements from financial products designed with an environmental or social purpose should be developed to reassure those that are still on the fence in respect of impact and sustainable investments.
Law stated - 05 October 2021
