Benoît Theunissen: What is the origin of the LSFI?
Nicoletta Centofanti: Founded in January 2020, the LSFI is the result of cooperation between the Luxembourg government--through the Ministry of Finance and the Ministry of the Environment, Climate and Sustainable Development--Luxembourg for Finance and the Conseil supérieur pour un développement durable [editor’s note: the government’s sustainable development advisory council]. The idea for its creation dates back to 2018 with the publication of the national roadmap for sustainable finance. Since then, the LSFI’s mission has been to coordinate the players in the sustainable finance ecosystem in Luxembourg in order to accompany the financial sector in its transition in this area and has been tasked with developing the Luxembourg strategy for sustainable finance.
How is your role in coordinating the country’s sustainable finance ecosystem organised?
We pay particular attention to our role in raising awareness on the subject and understanding the needs of the financial sector so that it can transition more quickly. In this respect, we interact extensively with the key players in sustainable finance in Luxembourg, such as, for example, financial sector associations, academia and fintechs, but also with NGOs and civil society, as we consider that consumers of financial products also contribute to accelerating the transition of the financial sector.
In our first year alone, we have held more than 300 meetings with different stakeholder organisations. This is essential for us to be able to identify the needs of the financial sector and to inform about best practices. We are also constantly identifying tools and standards for sustainable finance that are useful for each type of stakeholder.
The financial sector has started to work a lot on the subject, but has not yet reached a full level of maturity.
How does your awareness-raising mission fit in with your coordination role?
Our mission is to raise awareness, but it is meaningless without stakeholder coordination. We listen to everyone’s needs and bring the different sectors to the table. For example, the inclusive finance sector has a lot of knowledge about social aspects. We then link them with the traditional financial sector. We need to tap into existing resources instead of reinventing them. Soon we will also establish working groups to find common solutions and approaches to the issues we have identified in our first year of activity.
In your opinion, what is the level of the Luxembourg financial sector in terms of sustainable finance?
The financial sector has started to work a lot on the subject, but has not yet reached a complete level of maturity. This is mainly due to the numerous European regulations with which the financial sector is still struggling. It is not a simple journey. Financial institutions are in the process of organising themselves in a stable and definitive way to manage this new challenge, which is quite key. Even if we are in an emergency situation, the change expected from the financial sector cannot be achieved overnight. This is one of our raisons d’être in accompanying the players in the sector by identifying tools, best practices and possible synergies.
Nicoletta Centofanti of the LSFI said that financial institutions need to understand the methodologies behind ESG scores. Photo: Romain Gamba/Maison Moderne
Isn’t the financial sector one of the keys to the energy transition of the economy?
The engine of the ecological transition is finance. All companies are financed by financial institutions. This is why it is essential to raise awareness among financial sector players and help them find the right tools for a meaningful and efficient sustainable transition, as they have the power to channel their financing flows to the most virtuous and sustainable companies. This principle will become an integral part of the processes of financial institutions, in the same way that anti-money laundering rules have been. In the energy transition, finance will be the dominant factor.
The current regulations are no longer a surprise for financial institutions. They are now busy preparing for them and implementing them in the best possible way.
The regulatory factor has now taken over sustainable finance. Is this a subject on which you support financial institutions?
We are not regulatory experts. The regulations remain both broad and complex, and they change regularly. Our role is therefore to inform about the arrival of new regulations through our newsletter, our website and other platforms, for example. For their part, financial institutions are largely aware of the regulatory issues. Most of them participate in the various working groups dealing with these issues at the level of the industry associations. Moreover, the current regulations are no longer a surprise for financial institutions. They are now busy preparing for them and implementing them in the best possible way.
Before achieving such a high degree of integration of sustainability criteria in the financing process, shouldn’t financial institutions first solve the challenges related to the quality of ESG data reported by companies?
This is a real challenge, but the data itself is not the problem, because there is plenty of data. The question is rather which data to use. While three to five KPIs are needed to get a true picture of a company’s financial situation, much more are needed for ESG measures. Faced with this challenge, many financial companies look for a single KPI that summarises all the elements. This doesn’t work, as a granular approach to sustainability is needed. For example, you need to analyse supply chains.
It is not, however, up to the financial institutions to carry out the due diligence and audits, but they should understand the methodologies used. This is one reason why ESG scores need to be more transparent about the methodologies used. For our part, we will be launching a dedicated ESG data working group early next year to try to help solve this problem. On our website, we have also listed the tools that provide data on the different ESG themes in a transparent and free way.
Read the original French version of this interview on the site. This article was published for the Paperjam + Delano Finance newsletter, the weekly source for financial news in Luxembourg. .