ESG – a key trend driving growth within Luxembourg’s investment funds industry?
Luxembourg continues to be the leading hub for the set-up and administration of investment funds in Europe. Despite the Covid-19 pandemic a growth of the assets under management (AUM) in Luxembourg can be observed. An all-time record of more than 5 trillion Euros of AuM as at 31 January 2021 was achieved. This should be considered as tremendous success.
One of the current trends driving growth and development in the Luxembourg fund industry is sustainable finance. Beginning of February this year, the credit rating agency Moody’s acknowledged this trend by certifying Luxembourg’s good environmental, social and governance (ESG) performance with a triple-A rating, for the first time ever. The positive ESG credit impact score to the Grand Duchy reflects low exposure to environmental and social risks, top-performing governance as well as a very high capacity to respond to market disruptions and, of course, continuing efforts in this area by the government and the industry players.
In September 2020, Luxembourg was the first European country to launch a Sustainability Bond Framework, which met the highest market standards in the field and was also the first in the world fully compliant with the new recommendations of the European taxonomy for green financing.
In order to encourage investments in sustainable finance, in February 2021 the Luxembourg government launched the Sustainable Finance Strategy, as developed by the Luxembourg Sustainable Finance Initiative. The strategy determines the general action plan, based on three main objectives: (i) promoting and increasing awareness on the sustainable finance initiative; (ii) creating a knowledge and experience sharing platform to unlock the potential of the sector, (iii) measuring progress in the financial sector.
In the context of a global shift towards sustainable finance, driven by an ambitious regulatory agenda in the EU, Luxembourg has taken and continues to take the leading position in the development of new products and services. We are now in the new era of complete reshaping of finance and redirection of private capital towards greener and hence more sustainable environmental objectives and investments.
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