Does a financial institution that wants to enter the sustainable finance space through targeted investments in thematic companies and projects know how to do it? Given the complexity of the issue, both from a financial and technical point of view, the Luxembourg Sustainable Finance Initiative (LSFI) has set up an online toolbox to answer this question. The latter shows the necessary steps and instruments according to the needs and degree of maturity of the respective financial institution.
As part of its mission to inform investors and financial stakeholders, the LSFI, in partnership with the NGO IMS Luxembourg (Inspiring More Sustainability), organized a webinar on December 21 presenting the tools available to financial institutions. Each type of instrument corresponds to each stage of the process a company may be in on its journey towards sustainable finance activities.
Launched in January 2020 by the Luxembourg state, the LSFI meets the government’s goals of positioning Luxembourg as a European hub for sustainable finance. In the form of a non-profit association, it is the result of coordination between the Ministries of Finance and the Environment, Luxembourg for Finance – the development agency of the financial center – and the Higher Council for Sustainable Development – an independent advisory body to the government.
Initiatives and frameworks
If a company needs to learn from its peers on defined ESG (Environment, Social, Governance) issues, the LSFI suggests that it moves towards an initiative in this area. An initiative is a group of members or a networking platform to join to share and identify best practices.
An initiative also makes it possible to get advice from other professionals. The LSFI recommends starting with this step before a sustainable financing process. On its website, the LSFI lists no fewer than 32 initiatives, alliances, networks or coalitions, each with a specialty such as climate change issues, impact investing or ESG issues.
If a company is a bit more advanced and plans to define a strategy for itself, the LSFI recommends joining a “framework”, also called a “principle”. A framework forms a set of high-level principles and provides support to organizations both in achieving their goals and in setting up a process or even optimizing their process. To do this, a company does indeed need guidelines.
Like initiatives, frameworks are specialized in different areas. Whether setting a strategy related to ESG risks, human rights or specific asset classes, the LSFI has identified 21 frameworks.
standards and tools
On the other hand, if a financial institution needs to measure the data reported by companies, the LSFI recommends following a specific standard. In this way, a standard sets requirements and parameters to facilitate both the collection, communication and disclosure of ESG data and information.
Following a standard results in a company guaranteeing comparable and reliable disclosures over time. Thus, by measuring and tracking the progress of the companies in its investment portfolio, a financial institution can demonstrate the impact it has made over time. The LFSI has listed 18 standards that reflect different dimensions underlying the issue of sustainable finance, such as: B. Environment, human resources or social aspects.
After any sustainable financial process, it is necessary to collect ESG data. To this end, various tools provide data and scientific analysis on the various issues that a company’s strategy focuses on. With these tools, they can assess whether the commitments and targets are being implemented correctly. According to LSFI, there are at least 37.
To further deepen the tools related to sustainable finance, the LSFI has planned to organize two more webinars during the year. One in September will focus on standards and another in December will deepen usage of tools. These two webinars will involve experts representing some of the instruments listed to provide guidance on their specifics.
This article is from the newsletter of Paperjam Finance, the fortnightly meeting dedicated to following financial news in Luxembourg.
You can register using this link.
You can register using this link.