Despite increasingly anti-environmental thinking emanating from the United States including direct legislation forbidding such investments, sustainable investing retains strong backing in Luxembourg, notably from institutional investors, but also from many global retail investors.
“It provides a very bad signal,” said Alexandre Mars, a French entrepreneur who heads the Paris-based ‘responsible finance’ firm Blisce, focusing on sustainable and profitable innovations. He recently spoke in Luxembourg at an event hosted by Deloitte, arguing that this country and its European allies must be willing to take a different path.
“A country like Luxembourg, the co
ntinent Europe, will still be there and will still strongly figure, and to me, you have to align with your values,” he said. “I do strongly believe that we will always survive if we work and if we work as a group, as a team.”
Luxembourg sustainability
Luxembourg has developed significant expertise in sustainable investing, with a sector featuring firms offering Ucits mutual funds, expertise in green bonds, and with the presence of several European institutions whose activities focus on this area.
When measured by traditional financial standards, green investments have recovered recently from weaker relative performance that had raised doubts about their investment suitability, explained Sergio Venti, a partner at Deloitte Luxembourg.
“This was probably an important trend for the industry to go through, and we may have reached a moment of stabilisation, of realism, of pragmatism.”
Sergio Venti, Deloitte
“This was probably an important trend for the industry to go through, and we may have reached a moment of stabilisation, of realism, of pragmatism,” he said.
Important lessons learned
Francois Ralet, managing director and director of risk and fund governance at Wellington Management, explained that the sustainable investing industry locally has learned some important lessons.
“The conclusion for us is that you can have the best Article 9 funds,” he said, referring to the most sustainable funds under the EU’s Sustainable Finance Disclosure Regulation. “But you also need to be able to generate a significant alpha or otherwise, the fund will not take off.”
Regulatory change
Luxembourg’s sustainable investment industry is still contending with significant developments in EU legislation and how it is locally implemented.
“We also need to agree that it hasn’t been optimal, the way the regulatory framework has unfolded,” said Shaneera Rasqué-Boolell, ESG coordinator for investment funds at Luxembourg regulator the CSSF. “I mean in terms of how legislation has fallen into place, in terms of providing clarity on the key concepts of a regulation.”
One key area of disagreement concerns how the EU’s regulatory system should evolve, especially around investor accountability.
Investor initiative
Pointing at how rapidly the sustainable investment framework was set up, Venti argued that increased supervisory convergence, intended to prevent different rules in many EU member states, could pave the way to requiring more initiative from investors.
“More convergence means probably more trust at the end, and probably more competitiveness on this very specific investment segment for the European industry, which is what I think is a bit missing today, at least when you look at the European landscape,” he said.
The CSSF’s Rasqué-Boolell took issue with this assessment.
“It’s not right to put the due diligence responsibility on investors, so we need to have a minimum comparable basis in order to be able to enhance the disclosure.”
Shaneera Rasqué-Boolell, CSSF
“I understand that it’s a good thing to have a disclosure regulation, but at the same time, from a supervisory perspective, I think it’s not right to put the due diligence responsibility on investors, so we need to have a minimum comparable basis in order to be able to enhance the disclosure. I disagree.”
Industrial base
Beyond the ongoing regulatory debates, Luxembourg is nurturing a growing sustainability-oriented industrial base.
One example is Aperam S.A., a company spun out from Arcelor Mittal at the beginning of 2011. It concentrates on the production of speciality and stainless steel.
Sudhakar Sivaji, the firm’s chief financial officer, explained that while it started out with stainless steel, it is pivoting towards recycling, which accounts for two-thirds of its business.
Recycled jets
“If you’ve been in a plane which has flown in the last 10 years… the material of that plane has gone through Aperam’s hands, because we are the world’s largest recycler of aerospace material.”
Sivaji complained about governments’ tendency to overly focus on what he called “sexy” topics, such as hydrogen, but joked with a play on words.
“We like to follow sexy words. If you say hydrogen, you get money immediately. If you say blonde hydrogen, you get money the next minute in your account.”
Policy importance
Jérôme Petry of Luxembourg’s Ministry of Economy, who emphasised Luxembourg’s efforts to support industry and startups, took issue with Sivaji’s statements. While agreeing “there are always terms which sound sexy”, he stated that “hydrogen is important for our energy sovereignty.”
He said, despite this, the “circular economy” has been on Luxembourg’s agenda for over 10 years.
“Even though we are a small country,” he said, there will be more “focus in terms of reusing resources.”
“We want to really go away from taking resources out of the ground.”
Further reading on Investment Officer:
- ESG investing retreats in language, not in portfolios
- Tackling greenwashing, Esma asks funds to back up ESG claims
- ESG funds brace for $40 bln outflow as new EU rules loom