ESG funds in Luxembourg saw a 12.3% rebound in assets under management (AUM), rising from €2,893.1bn in H2 2022 to €3,247.7bn by June 2024, according to a new report by the Luxembourg Sustainable Finance Initiative (LSFI) and PwC Luxembourg.
The report, 'Sustainable Finance in Luxembourg 2024: A Maturing Ecosystem', marks the third edition in its series and aims to provide a picture of the state of sustainable finance in Luxembourg.
It examined the core ESG strategies adopted by mutual funds based in Luxembourg, focusing on their evolution in terms of the number of funds and their AUM and delving into the ESG strategies employed.
It also looked, for the first time, at ESG strategies within private markets and stewardship mandates of Luxembourg players.
The study also offered other key updates, including principal adverse impact (PAI) reporting, the use of the voluntary European ESG Template (EET), climate-related affiliations embraced by Luxembourg market participants as well as an overview of the key sustainable finance players in Luxembourg.
Among the key findings, retail investors showed a strong interest in ESG UCITS funds, pouring in €12.6bn of net flows during H1 2024. Institutional investors, on the other hand, withdrew €7.8bn during the same period.
The majority (68%) of the AuM of Luxembourg-domiciled UCITS corresponds to funds disclosing as per Article 8 of the SFDR, followed by 27% for Article 6 and 4% for Article 9.
The growth of ESG private market funds domiciled in Luxembourg has been remarkable, achieving a compound annual growth rate (CAGR) of 95.2% from 2019 to 2023.
Private equity ESG funds accounted for €267.5bn in AuM, followed by infrastructure (€188.9bn), real estate (€107.7bn), and private debt (€58.7bn) in 2023.
Of 440 financial market participants surveyed, 106 have published a report on the PAIs of their investment decisions, while 195 have issued an explanation as to why they do not consider PAIs.
The updated ELTIF structure simplifies retail investor access to private markets, opening doors to sustainable and ESG-focused investments. As of September 2024, Luxembourg hosts 84 of Europe’s 132 ELTIFs, accounting for 63.6% of the total, with numbers steadily increasing.
Nicoletta Centofanti, CEO, Luxembourg Sustainable Finance Initiative (LSFI) said: "Sustainable finance is essential for Luxembourg's financial centre to address climate and nature-related risks and take an active role towards the current social and environmental challenges.
"Sustainable Finance is also an opportunity for financial institutions related to funding, talent, and reputation, among many others. In short, embedding sustainable finance is key to the future resilience and competitiveness of our financial centre.
"However, it is a complex journey requiring new skills, metrics, and processes. This study aims to support the financial sectors in this regard, assessing Luxembourg's progress, trends, and challenges in sustainable finance. Gaining this understanding is essential for financial market participants to fulfil their crucial role in driving the much-needed sustainable transition.”
Frédéric Vonner, advisory partner, sustainability, PwC Luxembourg, also said: "The evolution of frameworks like ELTIF 2.0 and SFDR will open new doors for retail and institutional investors to align their portfolios with meaningful environmental and social goals. To maximise our impact, we must prioritise data quality, standardised reporting, and effective impact measurement.
"Embracing innovation and technology, such as AI-driven data analytics and blockchain-based traceability, can unlock new opportunities and drive sustainable growth. By collaborating closely with international partners, Luxembourg can continue to set the standard for how financial markets drive the transition to a more equitable and sustainable world."
