The finance ministry, Luxembourg for Finance and Alfi all defended the financial centre's sustainability credentials following a critical report by Greenpeace Photo: Shutterstock 

Greenpeace on Wednesday presented a study that analysed the country’s 100 largest funds and their climate impact. The organisation’s international executive director called emissions financed through Luxembourg the grand duchy’s “dirty secret.”

But demands made by Greenpeace to make the fund industry more sustainable are already being addressed, the finance ministry said in a statement sent to reporters on Thursday.

“Over the last years, Luxembourg authorities have systematically put in place a strategy that supports and creates incentives for investment funds to reach their goals under the Paris Agreement,” the ministry said. “Luxembourg is fully committed to the UN Agenda 2030 as well as the Paris Agreement, and more specifically supports the green transition of the financial sector in Europe and beyond.”

It also criticised Greenpeace for including only equity funds in its assessment and ignoring environmental, social and governance commitments and active shareholder engagement by some of the largest asset managers.

“Greenpeace seems to assume in its criticism of Luxembourg that the grand duchy's government could or should have mandated funds to invest in more sustainable assets. As the discussion at the EU level on the sustainable finance regulatory package has made abundantly clear, that is not a workable avenue,” said Nicolas Mackel, CEO of Luxembourg for Finance, in a statement to Delano.

The finance ministry, too, said the NGO “misrepresents the role that Luxembourg authorities can and should play in helping private actors to meet their climate targets.” 

Mackel added: “We cannot change our economies overnight and funds’ exposure to less clean industries cannot be reduced at a whim. We have always said that we are only at the beginning of transitioning our industry towards more sustainable processes. This will take time.”

The Luxembourg government is expected to unveil a sustainable finance strategy that should more comprehensively address the Agenda 2030 and Paris Agreement commitment. Luxembourg is home to the Luxembourg Green Exchange that lists more than half of the world’s green bonds, as well as Luxflag, a labelling agency that aims to create greater transparency on sustainable products.

“The government has recently introduced a lower subscription tax rate to encourage investment funds to invest an increasing share of their assets into green and sustainable activities,” the finance ministry said, in addition to issuing a first sovereign sustainability bond and setting up a sustainability bond framework in line with the EU’s taxonomy that defines what constitutes sustainable activity.

The association of the Luxembourg fund industry said it “has taken due note of the observations and conclusions drawn by Greenpeace Luxembourg” but added that the environmental activists were silent on EU initiatives.

These include not just the taxonomy but also the non-financial reporting directive that requires large companies in the EU to publish reports on their policies in the following areas:

  • environmental protection,
  • social responsibility and treatment of employees,
  • respect for human rights,
  • anti-corruption and bribery,
  • diversity on company boards.

Around 6,000 companies are affected by the directive.

In addition, from March 2021 the EU’s sustainability-related financial disclosure regulation will oblige financial services providers to disclose sustainability risks. By harmonising disclosure rules, the regulation aims to increase transparency on how financial centre players consider sustainability risks in their investment decisions.

“The European Commission’s plan on financing sustainable growth is a unique opportunity for Europe to position itself as leading the sustainability agenda and driving the transition towards a sustainable economy,” Alfi said. “There is no room for diverging initiatives at the level of member states which could only result in more fragmentation whereas climate change and environmental issues are global by nature.”