“The transition to a more sustainable economy is well under way”

While some of the dominant discourse casts doubt on the momentum of the transition to a more sustainable economy, the facts show that it is well underway and that it is difficult to imagine going backwards," comments Laetitia Hamon, head of sustainable finance at the Luxembourg Stock Exchange. The main driving force behind this transition is economic.

The transition to a sustainable economy is well under way. Following the Paris Agreement, many countries have implemented a range of measures to meet the climate challenge. And if, recently, certain dominant discourses give the impression that the momentum is not as solid as it should be, it is worth recalling the foundations of this transition.

“If we don’t do everything we can to achieve the targets that have been set, and to which the vast majority of the world’s countries have signed up, we will be exposed to major climate disruption,” points out , head of sustainable finance at the Luxembourg Stock Exchange. “These impacts affect not only human beings, but also economic activities directly. One of the most notable examples is the withdrawal of insurance companies, which no longer wish to cover certain risks because of climate change.”

But companies didn’t wait for Los Angeles to be engulfed in flames to stop insuring fire risks in the region. For several months now, a number of them have stopped renewing certain insurance policies.

An economic issue, first and foremost

“The transition is first and foremost a business decision. One of its pillars is risk management, and more specifically the management of the financial risks specific to each company,” continues Hamon. “If you invest in real estate in Florida, for example, it’s essential to take into account the potential impact of an upsurge in bad weather. It’s first and foremost a question of economic and financial interest for the entity concerned. From that point onwards, the transition approach is a natural one.”

We are thus witnessing a change in market dynamics. For economic players, this means new positioning opportunities. It is essential to integrate new technologies and implement innovative approaches to meet emerging expectations.

“It’s all about striking a balance between risks and opportunities. Furthermore, access to finance will depend on the ability of companies to embrace this transition and to promote their ESG commitments,” comments Hamon. “A growing number of companies have developed expertise related to these challenges, and these issues are increasingly being integrated into the heart of corporate strategies.”

No turning back

The final essential pillar of this transition is undoubtedly the regulatory framework. In Europe, in particular, the implementation of texts such as the Corporate Sustainability Reporting Directive (CSRD) and the European Green Bond Standard is reinforcing the path embarked upon, with concrete effects.

And while we may sometimes get the impression that some managers are trying to unravel the progress that has been made, the facts prove otherwise.

“You only have to look at the increase in renewable energy production or, if you look at stock market activity, the growth of the sustainable bond market. In fact, 2024 was the second best year in terms of issuance, with a total of €878bn,” says Hamon. “In the face of political rhetoric and the negative perception of the transition fuelled by certain sceptics, it is crucial to rely on the figures. They show that the transition is well under way and that there will be no turning back.”

Harmonising regulations

The enthusiasm for the transition, against a backdrop of polarised discourse and ideas, can be undermined. “It can indeed be difficult for a company in transition to assert itself as such. In some American states, companies that include ESG criteria in their policies are liable to be prosecuted,” she adds.

Of course, not everything is perfect. If we look at regulation, there are still many improvements to be made. “It is crucial to harmonise the various regulations in order to better support the players in the face of material challenges and priorities. The transition must be supported without undermining the competitiveness of businesses,” comments Hamon. “This is one of the challenges that the European Commission is tackling.”

Opportunities beyond constraints

Yes, taking account of these material impacts has a cost, just like the regulatory requirements imposed on banks after the 2008 crisis.

“Beyond the constraints, we need to be able to identify the opportunities: better risk management, the exploration of new models or the response to emerging expectations,” says Hamon. “To do this, we need to fully integrate sustainability criteria into the heart of the company and master the data so that we can make the most appropriate decisions, while promoting our efforts and guarding against the risks associated with greenwashing.”

Need for support

With this in mind, companies need the right support.

The Luxembourg Stock Exchange has been particularly committed to this approach for many years. In 2024, 660 new sustainable bonds totalling €268bn in assets, or 42% of the overall market, were listed on the Luxembourg Stock Exchange and displayed on the Luxembourg Green Exchange (LGX).

Today, LGX comprises more than 2,200 sustainable bonds, mobilising more than €1.2trn for sustainable development worldwide. In addition, the LGX DataHub is one of the leading databases consolidating information on 18,000 sustainable bonds, enabling investors and asset managers to optimise their decision-making.

“Finally, through the LGX Academy, we are working with a number of players, particularly in emerging countries, to build their capacity in sustainable finance and enable them to take advantage of the opportunities offered by this world in transition,” concludes Hamon.

This article was originally published in .