1. Luxembourg must grow its impact faster
“We need the capital to accelerate this transition and make it happen at the speed and at the scale that is required,” US special presidential envoy for climate, John Kerry, said during the webinar. It is crucial to offer bankable opportunities to attract private funding to the sector, added the special envoy, and Luxembourg should do all it can to accelerate efforts and its impact as a sustainable finance hub.
“We need the private sector to come to the table and be bold and be creative, and help us to finance and embrace innovative concepts of capital preservation and value creation,” said Kerry. “This sprint to a net zero resilient future actually represents the greatest investment opportunity of our time.” Thinking outside of the box and taking risks in investing in the transitions is necessary to encourage the markets to follow.
2. Commitments are a thing of the past
Yes, committing to sustainability goals is great, but like the latest IPCC report shows, it is becoming increasingly urgent to shift to more concrete plans. The time of commitments is over--it is now time for actions to be taken. “We have come a long way in mainstreaming sustainable finance. But (…) the focus must now move from commitment to implementation,” said Luxembourg finance minister Yuriko Backes (DP), in remarks echoed by Kerry.
Backes underlined the importance of setting clear and measurable goals, building trust through transparency, engaging with clients and leveraging technology and innovation, like AI, blockchain or data analytics. Actions must also be undertaken when implementing support towards the sustainable transition of lower income countries, of course.
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3. From divestments towards engagement
There is a shift in the mentality surrounding ESG investments, said panelists at the forum on Wednesday morning. Whereas ESG criteria were in an exclusion-based approach and a risk in the past, financial players now look at how their investments impact social, governance and climate issues, said Allianz Investment management partner Cornelia Nissen. ESG investing is not anymore a niche, but attracting more investors who wish to restructure their portfolios.
“That movement from divestment into engagement” indicates that investors are looking “for real world impact and opportunities,” added UBS Global Wealth Management strategist Antonia Sariyska. Investors can see sustainability as a way to diversify their portfolio now but “of course, that engagement needs to be credible”, with tangible milestones and actions taken.
4. Technology is critical to sustainable finance
“Sustainable finance is more and more regulated,” said panellist and Greenomy founder Alexander L.C. Stevens during a panel led by Luxembourg House of Financial Technology (Lhoft) CEO Nasir Zubairi. This means that companies have to not just go through vast numbers of data to determine their sustainability ahead of reporting it to EU authorities but also make sure to respect various kinds of complex regulations. This issue “definitely can be solved by technology,” he said.
There is a real interest in fintechs addressing the challenge and working on best practices, and in collaborations between institutions and fintechs. Technology can operationalise sustainability strategies, and bring the financial sector closer to transition faster.
5. Investors are recognising the climate emergency but…
Despite an anti-ESG sentiment showing itself among some, there is a long-term positive trend in interest in ESG, said the experts during the event. But, “we need to be very clear about how we reconcile sustainability with financial objectives. I think there is a real need for clarification at this point in time” to make sure the trend continues, said Candriam’s head of ESG client portfolio management, Marie Niemczyk-Dot.
“We have the chance to move from the typical shareholder to a stakeholder, or (…) to give the capitalist system a new purpose,” added Georges Bock, CEO of Investre. What will be important, is to motivate “everybody to participate” by empowering people through more accessible and inclusive finance, he continued.
The key for financial players will be to guide the transition to sustainability by creating value beyond wealth. After all, as Ulrich Heimhard, head investment & wealth management solutions at Julius Baer Europe, said, clients need to be shown that ESG portfolios are not philanthropy--with little return to come from such investments--but could over time “outperform” more traditional portfolios and be more resilient.