A partner at the consultancy Innpact, Corinne Molitor has more than 25 years of experience in the financial sector, including more than a dozen years working with corporate clients and institutional investors at Banque de Luxembourg. Innpact advises investors, companies and NGOs on how to successfully manage impact investments, which place societal objectives on the same footing as financial outcomes.
Photo: Jan Hanrion/Maison Moderne
Corinne Molitor, a partner at the consultancy Innpact, talks about how Luxembourg can play a bigger role in driving global environmental and social change through its investment industry.
Molitor says it’s a “myth” that impact investments yield lower returns. That’s one reason she wants financial firms to provide more training and for investors to ask more questions. Molitor spoke with Delano about changing Luxembourg’s financial sector in August. The interview has been edited for length and clarity.
Aaron Grunwald: Do you think that Luxembourg is punching above its weight in terms of impact investing or do the funds domiciled here need to do more?
Corinne Molitor: We are often preaching to those that are already convinced. So within this circle of impact actors, I think a lot is done. If you talk at the level of [the Association of the Luxembourg Fund Industry] or bigger organisations, then it’s still a niche and we still have to really raise awareness, educate people and then incorporate this expertise in our everyday business. And so I think we do need to do a lot more.
If people are not aware of what’s at stake and what Luxembourg can do as an international hub for finance, they are not going to move. And then we have to transmit and to build the necessary expertise in Luxembourg and not only rely on international actors and the Swiss microfinance managers coming to Luxembourg. We need to build expertise here and that’s also one of the aims of [the International Climate Finance Accelerator Luxembourg], to attract more climate finance fund managers to Luxembourg, and then we need to grow the volumes. We really need to shift a large part of assets, that today [we] manage traditionally, into more sustainable finance and into impact finance.
So how are you going to get those volumes?
We need clear incentives to invest more responsibly, be it impact funds, be it [environmental, social and governance] funds, it can be tax incentives. But it can also be other incentives. In France, for example, they’re promoting socially responsible funds via their occupational pension plans… so 10% of this money goes to impact finance. And I think that’s really good. It’s a commitment that they have taken that has really pushed the sector. So it’s not only tax. That’s by far not the only means we have. There are other things, especially when you think about long-term retirement savings, etc., that people should get aware of. [They should ask] ‘what is my money financing?’ And to integrate more long-term thinking into investment decisions than just a short-term commitment.
Do you think we need some disincentives, like a regulatory framework?
With computer trading, I once read the statistic, I don’t know if it’s true, but the average holding period of an equity position today is 19 seconds compared to 19 months five years ago. So this should clearly be disincentivised. There’s no value in investing for 19 seconds in a company. Short-term thinking should be disincentivised by whatever means.
Now, disincentivising or penalising brown companies, compared to green companies, is always difficult because you [could undermine] a transition. There are a lot of companies who still earn most of their cash flow from the old business but who are developing new businesses and they are using this cash flow [to finance the transition]. We should not underestimate this transition and the time it needs. But certainly, there need to be incentives to get it to grow faster.
Are there some companies in Luxembourg that you think are doing a really good job in terms of being responsible and should really be applauded?
I wouldn’t be able to tell you one name, but I think a lot of companies are doing more and more with e-mobility. You see what the bus companies are doing, having hybrid buses and having fully electric buses. I mean, 10 years ago on boulevard Royal, the air quality was really bad.
Companies are thinking about the way they do business and about the way they source their products, compensating their [CO2] emissions, etc., [but that] hasn’t reflected yet into twisting their business model in a way to make it more sustainable.
As a B corporation [editor’s note: a certification that a for-profit company “balances purpose and profit” across its operations], we work on both sides; on the business we do and also the way we do business. So the twisting of the business model towards a more sustainable business model allowing you to reach the same level of revenues and of profit but with supporting clients and products that are more sustainable compared to others.
Is there a company or sector that’s really bad even if it would be relatively easy for them to make changes?
I think the financial sector.
The financial sector?
Yes. Insurance companies have to do a lot more. There’s so much money that is ‘sleeping’, that is just invested to be invested, but without thinking of what can really be supported with this money. So I think there lies an enormous potential. And so we have drafted together with [the United Nations Environment Programme] this road map for sustainable finance for Luxembourg. There are a number of recommendations and points really to be addressed over the next 10 years to make sure that, purposefully, we twist the business model of banks, of asset managers, of funds, of insurance companies towards a more sustainable model. And we have an enormous potential there because our financial centre is so huge compared to the local market. And that also gives us a responsibility to do it. We often talk about fuel consumption in Luxembourg, which is disproportionate compared to the [number of] residents, which is attracting people from abroad because fuel is cheaper here, etc. Yes, that’s one thing, but I think the financial centre has a lever which is much more important.
You’re talking about a big shift towards responsible investments?
Exactly. Not having 1% or 2% invested responsibly, but growing that to 80%, 90%.
What’s the resistance? Is it investors or the people working in the investment sector?
I think it’s both. It’s this myth that sustainable investments generate less returns, so that there needs to be a trade-off between them. That’s a myth, because we see climate risks appearing in traditional investments. We have risks that will generate losses; we have seen the first bankruptcy in the US [editor’s note: by an electric utility, filed earlier this year] that will generate losses that are not accounted for for the moment.
Is that more of a problem in Luxembourg or are financial markets behind globally?
I think they are globally behind, but we need to move fast because we see that risks are appearing. We see that there are huge opportunities also, especially in this transition phase where energy systems are transitioning, mobility transitions, food production is transitioning and so there are now huge opportunities to earn a lot of money in this transition phase.
It’s not just in Luxembourg; it’s generally that this ‘change management’ needs to happen and to accelerate. People, you know, if they do something well and they do it for 20 years the same way, are reluctant to change.
They are happy and they are in their bubble?
So how do you pop the bubble? Change is hard, right?
You need to show more the opportunities. The opportunities to generate financial returns and to give meaning to your money.
I was once in a conference in London where an ex-adviser of Barack Obama said you cannot just show catastrophe pictures to people to get them to move. She said: ‘I’m sick of seeing this fucking polar bear on the melting ice’. That’s right. I mean, you don’t see a polar bear [in Luxembourg]. I have never seen one except in movies and pictures and I don’t want to travel to the Arctic just to see a polar bear. So we need to show examples that are local, that people relate to, and you need to show opportunities rather than just catastrophic pictures because people get fed up very quickly and people get tired [of those images].
How can individual investors, who want change, check complicated claims?
Yes, it’s still hard. On the other hand… there are a number of awards that have emerged and that are important for client and investor recognition because every investor cannot verify every [piece of] information on every product; that’s not possible.
You cannot verify everything, so we need these kinds of labelling agencies. Luxflag is one; it’s very good but there are others that are also doing a good job. Now, we’re talking about an eco-label at EU level. So, for example, the eco-label exists for food and for a number of products, and now the EU commission wants to extend it to all sorts of financial products. So I think that’s important. I mean, you always have the critics who say ‘something that is labelled eco, you cannot trust it’. Yes, OK, but it’s better than having nothing. It’s already a good way already to start.
There are people who don’t have the knowledge and who don’t have the time to dig deep. But to those [investors], we should provide a simple to understand label where they [can] say, ‘OK I want to invest more responsibly and I want to be aware of where my money goes, so I choose these types of products’. So standardisation is important.
If there was one thing you could ask financial firms here in Luxembourg to do, what would it be?
Train their employees.
And what about consumers?
Ask questions to their insurance company, to their banker on sustainable and environmental themes. OK, they shouldn’t come with all the knowledge. I mean, they are the clients. They have a service provider, which is a bank [or] insurance company. It’s up to them to provide answers or to provide at least, you know, a process. To say, ‘OK, we are developing these, or we are evolving to these [products]’. But, really, training is crucial.