Sustainable Finance cannot help overcome sustainability challenges. Or can it?
Sustainable Finance cannot help overcome sustainability challenges. Or can it?
There is no single sustainability challenge. While the fight against global warming and the ecological transition are the most well-known and thematised, the challenges facing our societies are multiple. The United Nations illustrated this diversity in 2015 by adopting 17 Sustainable Development Goals (SDGs). This is a global call for action to eradicate poverty, protect the planet and ensure that all people live in peace and prosperity by 2030.
Based on the SDGs, countries have made several commitments, either through the Paris Agreement or the European Green Pact, to help achieve one or more of these goals.
The world of finance as part of the answer
Europe needs to mobilise one thousand billion euros per year by 2030 to achieve its ecological transition objectives. National governments alone do not have the capacity to come up with such sums. The private sector, and more particularly the financial sector, has been identified as one of the levers for achieving these objectives, as it offers instruments such as loans or financial products that enable savers/investors to direct their capital towards companies that are in the process of transforming themselves and/or that offer sustainable projects or products.
“Europe is committed to climate neutrality by 2050. And while public finance is important it will not be enough. The EU sustainable finance agenda ensures that private investment plays a central role in meeting our climate goals. Through setting out clear criteria on what is sustainable, as well as reporting standards, we are giving companies and investors the necessary tools so that money flows to investments that help us reach our net zero target."Maireed McGuinness, European Commissioner.
The financial community has undertaken a real transformation and is committed to investing more transparently in so-called green, ethical, or responsible companies, to reducing or even abandoning its investments in sectors that are harmful to the environment, such as coal or other fossil fuels, and even to engaging in a real dialogue with these companies to demand greater respect for human rights or the environment in return for their financing.
Luxembourg banks commit to more sustainable finance
Founded in 1992, the United Nations Environment Programme Finance Initiative was the first organisation to engage the financial sector on the path to sustainability and incubated the Principles for Responsible Investment, which are now the leading global advocate for responsible investment. Through these principles, banks are taking steps to align their core strategy, decisions, lending and investments with the UN Sustainable Development Goals and international agreements such as the Paris climate agreement. The Principles for Responsible Banking include the Net Zero Banking Alliance, which is the climate-focused initiative of this global framework. The Association of Banks and Bankers, Luxembourg (ABBL) is one of 70 associations around the world that supports this programme and encourages its members to implement these principles. Most Luxembourg banks are signatories to the principles either directly or indirectly via the international group to which they belong. For more information, please visit: www.unepfi.org
Can I have an individual impact through my investment choices?
The mobilisation for a more sustainable finance can only become a reality through a global awareness and a strong will of all actors. Each of us now can express how he or she would like his or her money to be used, in particular to address the environmental and social challenges that we consider to be the highest priorities. If sorting waste, reducing our water consumption, selecting products based on ethical criteria, are behaviors that we adopt more and more in our daily lives, the way we invest our money is no exception.
Without even talking about sustainable finance, the question of our action arises when we have to make a decision on how to use our money. For example, do I apply for a loan to buy a car with a combustion engine or an electric one? Do I invest in making my home more energy efficient, etc.?
But to come back to sustainable finance, public interest in it is growing for various reasons: out of a desire to behave ethically, to boycott less than virtuous companies, out of a concern to leave a sustainable future for future generations, out of pure philanthropy or out of interest for more sustainable financial returns, it doesn't matter what the convictions are, each and every one of us can act and should be aware of the impact of our financial investments!
Your banker is now obliged to take your sustainability objectives into account.
Until now, your discussion with your banker about your choice of financial products was based solely on the risk/return trade-off. Since 2 August 2022 your banker is also obliged to take your sustainability preferences into account in your investment choices and to enter into a dialogue with you on this subject.
