Does a financial institution that wants to enter the field of sustainable finance through specific investments in companies and thematic projects know how to go about it? Given the complexity of the subject, both from a financial and technical point of view, the Luxembourg Sustainable Finance Initiative has developed to answer this question. The toolkit indicates the necessary steps and instruments, depending on the needs and maturity levels of each financial institution.
As part of its mission to inform investors and financial actors, the LSFI, in partnership with the NGO IMS Luxembourg (Inspiring More Sustainability), organised its first webinar in a series last December, setting out the instruments available to financial institutions. Each type of instrument corresponds to each stage of the process in which an entity may find itself on its journey towards sustainable finance activities.
Launched in January 2020 by the Luxembourg government, the LSFI aims to meet the Luxembourg government’s objective of positioning the grand duchy’s financial centre as a European hub for sustainable finance. In the form of a non-profit organisation, it is the result of coordination between the ministries of finance and environment, promotion agency Luxembourg for Finance and the High Council for Sustainable Development, an independent government advisory body.
Initiatives and frameworks
If an entity’s need is to learn from its peers on specific environment, social and governance (ESG) themes, then the LSFI suggests that it turn to an initiative in this area. An initiative is a membership group or networking platform that can be joined to share and identify best practices.
An initiative also provides a way to get guidance from other professionals. The LSFI recommends starting with this step at the beginning of a sustainable finance process. On its website, the LSFI lists no less than 32 initiatives, alliances, networks or coalitions, each with a specialty such as climate change issues, impact investing and ESG materials.
If an entity is more advanced and is considering a strategy, the LSFI advises joining a “framework”, also known as a “principle”. A framework is a set of high-level principles and offers organisations support in both achieving their objectives and implementing or streamlining their process. To do this, an organisation needs guidelines.
Like initiatives, frameworks specialise in different areas. Whether it is to set a strategy around ESG risks, human rights or specific asset classes, the LSFI has identified 21 frameworks.
Standards and tools
If, on the other hand, a financial institution needs to measure the data reported by companies, the LSFI recommends following a particular standard. In this way, a standard determines requirements and parameters to facilitate both the collection and the communication and disclosure of ESG data and information.
Following a standard leads an entity to ensure comparable and reliable disclosure over time. Thus, by measuring and tracking the progress made by companies in its investment portfolio, a financial institution can demonstrate the impact achieved over time. Echoing various dimensions underlying the theme of sustainable finance, such as the environment, human resources and social aspects, the LFSI has listed 18 standards.
Downstream of any sustainable finance process, it is necessary to collect ESG data. To do this, various tools provide data and scientific analyses on the different themes targeted by an entity's strategy. These tools enable them to assess whether the commitments and objectives are being properly implemented. According to the LSFI, there are at least 37 of them.
In order to go further into the tools for sustainable finance, the LSFI has planned to organise two more webinars in the course of the year. One in September will focus on standards and another in December will go into more detail on the use of tools. Both webinars will feature experts, representing some of the instruments listed, to provide guidance on their specificities.
Originally published in French by and translated for Delano