“Sustainable finance in Luxembourg”: points to remember

This study, jointly conducted by the Luxembourg Sustainable Finance Initiative and PwC, aimed to analyze key trends and assess the impact of sustainable finance on the real economy.

The study focused on the investment fund industry, and in particular on undertakings for collective investment in transferable securities (UCITS) based in Luxembourg, the only “comprehensive data” set available and actionable, explained Frédéric Vonner, Head of Sustainable Finance and Partner at PwC. .

2.216 billion euros of ESG fund

The results show that ESG funds domiciled in Luxembourg had €2.216 billion in assets at the end of June 2022, representing more than 50% (€4.060 billion) of Ucits funds in the country.

Most of these funds were in stocks and bonds, which can be explained by the fact that it is easier to choose investments and issuers that commit to a certain level of ESG criteria.

53% of assets in Section 8 or 9

In June 2022, more than 53% of the total assets of Luxembourg UCITS were invested in Article 8 or 9 funds. Funds classified under Article 8 accounted for the largest share of assets (47%). The report attributed the “observed popularity” of Section 8 funds to “the less stringent disclosure requirements of this segment.” It has been used as a “starting point” for developing sustainable fund options.

Note that Article 8 funds use sustainability criteria in their investment process, Article 9 funds have a sustainability objective for their investments, and Article 6 funds do not make a sustainability statement.

In response to the question of whether Article 8 or Article 9 funds “can be downgraded”, Frederik Vonner said that about 40 funds in the EU have been downgraded from Article 9 to Article 8. [ndlr: Morningstar rapporte que 41 fonds ont été déclassés au troisième trimestre de 2022]. The rationale for Mr Vonner could be that “some asset managers have been a bit too optimistic about the 2021 deadline” and now face a lack of information or an evolution in regulators’ approaches.

Screening, exclusions and participation in ESG

The study found that ESG exclusion is the most common strategy in Luxembourg-based ESG funds (54.8%). This means that assets are chosen to exclude certain types of investments, such as guns, tobacco or fossil fuels.

ESG screening, meaning that funds are properly ESG labeled because their screening process includes ESG factors, was the second most common strategy.

The third category was ESG-engaged funds. These funds consider companies that “proactively implement ESG best practices” or have “a high level of ESG integration in governance and integration.” This could be working towards a specific topic such as the UN Sustainable Development Goals or microfinance. The study found that funds involved in ESG offer higher allocations in terms of asset structure (64%), perhaps because it is easier to achieve a given objective than, for example, money market funds, according to Mr. Vonner. .

Popular software and services

The top three sectors to which ESG fund assets are allocated are software and services (9.8%), pharmaceuticals, biotechnology and life sciences (9.1%) and capital goods (8.4%).

More than half of the assets are allocated to global funds

The study shows that 55.4% of Luxembourg-based ESG assets invest in funds with a global focus, 18% in Europe-focused funds, 8.7% in US-focused funds and 8% in emerging markets. allocated to funds.

Qualitative analysis

The study also examined the qualitative aspects of sustainable finance in the Grand Duchy. Luxembourg is very active in mixed finance, Maria Tapia Rojo added, and the country has launched a number of initiatives, such as the Luxembourg-European Investment Bank funding platform or the international finance accelerator. For example, ICFA supports first and second fund managers in climate finance.

In addition, the Luxembourg Green Exchange has grown significantly since its creation in 2016 – from 106 to 1,450 bonds.

Many methodologies have been used to assess the impact of sustainable finance on the real economy, Tapia Rojo said, but in fact “research concludes that it is currently not possible to assess the impact of sustainable finance on the real economy”. This is due to the “lack of standardized and widely used and known ways to measure the impact of sustainable finance”.

Read the full report here.

This article was written by Delano In English, translated and edited into French by Paperjam.

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