green taxonomy

On the last day of the year, the European Commission secretly circulated a plan to classify the fossil fuel natural gas and nuclear power as ‘sustainable’ investments. It seems the Commission will not publicly consult on this plan - the second chapter of the EU ‘taxonomy’ - while it did so three times for the first chapter, which dealt with renewable energy. 

2021 was the third year in a row where sustainable investors outperformed non-sustainable investors. For a long time, there has been a debate as to whether sustainable investment comes at the expense of returns or actually generates additional returns. Many studies and meta-studies later, the cautious conclusion is that it probably does not cost a return and may even be good for the return.

The lack of available data on company-level will be the main challenge for asset managers to deal with after the regulation for sustainability‐related disclosures in the financial services sector, better known as SFDR, comes into force in March next year, according to Alfi’s Nathalie Dogniez (picture).

The coronavirus outbreak has increased the need for more granular ESG data. However, such data are still difficult to collect as they are often not disclosed by companies. This needs to change fast in anticipation of upcoming EU rules, said participants in a webinar on the topic organised by Luxflag on Wednesday.  

Investors need clear, comparable information to understand sustainable investing. A range of new EU standards and reporting rules aim to facilitate this, but implementation will be challenging with a tight deadline. This gives the Grand Duchy an opportunity to create a lucrative niche to help bring these regulations to life.

The proposals by the Technical Expert Group (TEG) for sustainable benchmarks and ESG disclosure will not lead to an increase in investments in the climate transition, says index provider Scientific Beta in a vicious 60-page rebuke of the TEG’s final report, which was published in autumn last year.

Luxembourg is set to bear a big responsibility for making the green financial revolution happen.  But are the rules of game clear enough, with reporting set to begin in just over a year’s time? And what role can Luxembourg’s fund service providers play?