No, it is not, as sustainable investments play an important role in the transition to a more sustainable world. In order to meet the international objectives in relation to sustainable development, such as a better climate and environment protection, huge investments of several billion euros are necessary. Thus, more and more financial products complying with the sustainability requirements set by the European Union are being offered.
Gilles Klein from the CSSF explains in an interview how we can find out if a financial product is sustainable, what is meant by “greenwashing” and what needs to be considered when investing in sustainable products.
The EU sustainable finance framework
The transition towards a more sustainable world requires significant financial investments, hence the importance of the sustainable finance topic. The EU has taken measures in the context of sustainable finance to increase the credibility of sustainable finance and to ensure greater transparency for investors.
Therefore, the EU set up a list of environmentally sustainable economic activities, referred to as taxonomy. This taxonomy allows companies, investors and policymakers to share a common definition of environmental sustainability. The taxonomy pursues the following six environmental objectives:
- Climate change mitigation;
- Climate change adaptation;
- Sustainable use and protection of water and marine resources;
- Transition to a circular economy;
- Pollution prevention and control;
- Protection and restoration of biodiversity and ecosystems.
Moreover, the EU imposes transparency rules on financial market players in order to improve information on the financial products’ sustainability degree. This allows addressing greenwashing and channelling investments to truly sustainable investments. Financial service providers also have the obligation to specify whether an investment takes into account the main negative impacts (such as greenhouse gas emissions, water pollution, forced labour, etc.) and, where applicable, to indicate what is done to mitigate these impacts.
Moreover, the EU sustainable finance framework includes benchmarks, standards and labels. These tools are expected to shift investment flows to more sustainable activities and business models and to provide investors with more transparency in this area.
The role of the CSSF with respect to sustainable finance
The CSSF, as a regulator, supports the supervised entities in order to actively guide the financial sector in integrating the ESG factors. It ensures an effective implementation of the regulations with a risk-based supervisory approach. Moreover, as part of its financial education duty, the CSSF assists consumers in their reflections and increasing awareness related to financial sustainability matters.
I am interested in sustainable financial investments, what should I do?
It is essential for investors to become familiar with the issue and to find out what sustainability means for them. This assessment may vary depending on the points of view and personal convictions of each investor. While, for some people, climate neutrality of the activities is a major argument, for others, a fair and socially just manufacturing process is decisive. Hence the importance of thinking about one’s own targets when investing in sustainable products.
Since August 2022, the financial sector professionals are required to assess the sustainability preferences of their clients, i.e. their clients’ wishes on sustainable investment. The assessment of the clients’ preferences regarding sustainability must allow financial advisers and investment managers to recommend investments that meet their clients’ investment profile.
How can I make sure that a product is really sustainable?
Once the personal sustainability targets are clear, the investment offers should be analysed with a particular emphasis on the following aspects:
- Which sustainability objectives are specifically mentioned?
- Which criteria has been used to measure sustainability (is the product sustainable in general or only in comparison to similar products)?
- Have other sustainability targets that are important to me been neglected (as, for example, climate-neutral manufacturing but inappropriate working conditions)?
- What evidence is provided to prove that sustainability targets are effectively reached?
- Can this evidence be verified? Has the achievement of sustainability targets been confirmed by an independent body?
It is essential to ask the right questions and not to be seduced by words such as “sustainable”, “ESG” or “green”.
As for any investment, it is important to gather information beforehand and to ask for advice from professionals.
Further information on:
https://www.abbl.lu/en/professionals/key-topics/sustainability
