Raising awareness on a complex topic like sustainable finance goes far beyond talking to the general public. All actors, including the finance sector, need to develop a suitable level of understanding before policies and investment strategies can translate into impact. “Only then it’s possible to understand why this is a priority.”
Nicoletta Centofanti, an environmental engineer with an Executive MBA from Milan’s Bocconi University, leads the Luxembourg Sustainable Finance Initiative, or LSFI, as its interim managing director. LSFI is a public-private body established during the Covid-19 pandemic and backed by Luxembourg’s government and the financial sector.
“Sustainable finance has to become mainstream, but we will only achieve our goal, our global goal, when we reach the point where sustainable finance delivers positive outcomes. Intentional, measurable, and significant impact with investment that we do. And that is something where the industry needs to continue working on.”
Collaboration with UNEP FI
Following a recommendation that stemmed from the Luxembourg Sustainable Finance Roadmap published by the Luxembourg’s government in collaboration with the United Nations Environment Programme Finance Initiative, LSFI was established in 2020.
It formally kicked off its activities in February 2021, as part of the Luxembourg Sustainable Finance Strategy, which supports the transition to sustainable finance and the development of the grand duchy as international hub for sustainable finance, so far marked by the Luxflag label and the Luxembourg Green Exchange, LGX, Europe’s biggest green bond market.
LSFI’s action plan has defined three interconnected pillars: raising awareness and promotion; unlocking potential; and measuring progress. Awareness, said Centofanti, is where it all begins.
Supporting the transition
“Our main mission is really to help raise awareness and help the financial sector transition towards sustainability,” she said. “Anyone needs to be aware, to be really aware of what we do. What do we mean with Paris alignment? What do we mean with the climate scenario? What do we mean with target setting? What do we mean with biodiversity loss, and with all the social issues, or let’s say governance-related matters? Sustainable finance is, unfortunately or fortunately, composed by this term, which is sustainability, that is so complex and full of significant meanings. So there is still a lot of awareness that needs to be raised.”
At an LSFI event in July, Luxembourg’s finance minister Yuriko Backes, expressed her support, describing sustainable finance as “a key tool to build low carbon, sustainable & resilient economies”. In its first year, LSFI arranged more than 300 meetings with stakeholders, learning about what others were doing and identifying synergies to avoid duplication.
This summer LSFI defined four new working groups to be launched in the future months in order to help the industry better come to grips with the challenges. The new working groups will seek to identify the needs of the financial industry, foster dialogue, share best practices, and overcome challenges. The groups will focus on climate reporting and measurement, education, data, and innovation.
No excuse not to act
The lack of reliable data and the complexity of EU regulation, including the taxonomy, Mifid II, the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD), and the concerns that a number of industry players voice on a regular basis are bound to be discussed here.
“Of course it’s good to complain. But we can’t use the complaints as an excuse not to act,” said Centofanti.
In particular, the SFDR classifications of investment funds such as “light green” Article 8 and “dark green” Article 9 are a thorn in the eyes of some industry participants who argue that these requirements, which cannot be backed up by reliable data, expose the sector to the risk of greenwashing allegations.
Centofanti said this discussion demonstrates the need for a different level of understanding and discussion.
Broader risk of greenwashing
“There is a broader risk of greenwashing, not because of the regulation but because of misuse of the regulation to promote a certain type of product,” she said. “It’s not the regulation that is wrong but the use of the regulation. Of course, the regulation could be stricter, could be more precise to avoid this mis-use.”
“Raising awareness for the financial sector we believe is still strongly needed, not because it’s not on the players’ agenda but because there is still so much to know and so much to learn on top of the regulation,” she said, referring to the complex interaction of initiatives, frameworks, standards, tools and principles, for example.
Centofanti recalls her own experience, starting in finance with a background in engineering. “When I started to learn finance, it was very confusing. I was very, very, very confused. It looked to me like I was studying a new language, a new science. You have to start digesting and understanding. The same applies to the financial sector. The sustainable finance regulation requires the financial expert basically to become an expert on sustainability.”
Not only financial experts, she added, but also lawyers, accountants and other specialists touched by sustainable finance need to up their game.
Greater opportunity
“In the end, sustainable finance, and sustainability, is a business opportunity, but there is also a greater opportunity, so to say, to save our planet, if we are going to be a bit more inspirational and ambitious. And everybody, I believe, is very into the subject because they see the value of doing the change and the need of doing this change in our society.”