For several years now, Luxembourg has been a world leader in the field of sustainable finance, thanks in particular to a favourable ecosystem and ambitious initiatives. The country has put in place support structures and regulations conducive to financial innovation, such as the Luxembourg Sustainable Finance Initiative and the Impact Investing Advisory Board, attracting many international fund managers and investors.
“Sustainable finance has come a long way in recent years. More and more players are recognising its dual potential: to generate financial returns while contributing to a sustainable and equitable future,” comments Stephan Peters, CEO of Accelerating Impact. The mission of this independent not-for-profit public-private partnership is to support tomorrow’s leaders in impact finance and to mobilise capital in support of the United Nations’ Sustainable Development Goals.
Creating social and environmental value
The notion of sustainable finance is broad and covers many different realities. It generally refers to the process of taking environmental, social and governance (ESG) criteria into account when making investment or financing decisions. These decisions are no longer based solely on potential financial returns and the usual risk management criteria, but also take into account sustainability issues.
“Within the sustainable finance ecosystem, impact finance occupies an essential place. It focuses on investments that generate measurable social and environmental benefits,” continues the CEO. It’s not just about integrating ESG criteria into investment decisions, but also about supporting environmental, social and good governance performance. “In this way, impact finance fosters the transition towards a more resilient and inclusive economy. It plays an active part in building shared prosperity and a viable future for future generations,” says Peters.
Challenges to be met, obstacles to be overcome
Whilst the integration of ESG criteria has become much more widespread in recent years, several major challenges remain and are still holding back the development of sustainable finance and, more specifically, impact finance. “First of all, the lack of uniform standards and regulations can lead to inconsistent and inconsistent practices, increasing the risk of greenwashing and undermining credibility, where projects are falsely presented as sustainable or high-impact,” comments Peters. “Added to this are gaps in data and methodologies to effectively measure and compare the impact of investments.”
In addition, more needs to be done to convince investors of the benefits of an impact-based approach. “Awareness and education remain limited, which reduces demand for sustainable financial products,” says the CEO. “Short-term profitability issues can often conflict with long-term sustainability objectives, forcing market players to strike a delicate balance between financial performance and positive impact.”
Supporting impact fund managers
Accelerating Impact, an initiative launched in 2018, is one of the responses being implemented to overcome these brakes and meet the challenges associated with the development of impact finance. In the form of a public-private partnership between the Luxembourg state and a dozen private entities from the financial sector, it offers targeted support to the future leaders of impact finance. “Through its two flagship programmes, the International Climate Finance Accelerator (ICFA) and the International Social Finance Accelerator (ISFA), we provide valuable resources and expertise to support emerging fund managers in the climate and social sectors,” says Peters.
The ICFA supports emerging impact fund managers who invest in climate mitigation or adaptation projects. By providing them with financial resources and targeted expertise, the programme helps them to structure and launch their funds while optimising their environmental impact. The ISFA works in a similar way to the ICFA, supporting fund managers who invest in initiatives aimed at reducing social inequalities, promoting financial inclusion or improving the living conditions of disadvantaged communities.
Luxembourg, a centre for financial innovation
The two programmes operate in parallel, combining their resources and expertise. “They provide essential support to impact fund managers in the early stages of launching their investment vehicles, which often come up against financial and technical barriers to entry,” explains Peters. “Beyond that, the approach helps to strengthen Luxembourg’s position as a centre for financial innovation, but also to maximise the social and environmental impact of the investments supported.”
Contributing to the development of knowledge
To strengthen its programmes, Accelerating Impact actively contributes to the development of knowledge and the sharing of its expertise within the wider impact finance ecosystem. For example, in collaboration with the Luxembourg Finance Labelling Agency (Luxflag), Accelerating Impact published its approach to classifying social impact investments in a research paper entitled “.”
The initiative is also working with institutions such as the European Investment Bank (EIB) and Spuerkeess, strengthening Luxembourg’s position in responding to global climate and social challenges.
This article was originally published in .