Sustainable finance and investment funds: what are the next steps?

29 January 2021 | Press Releases  

The Association of the Luxembourg Fund Industry (ALFI) has taken due note of the observations and conclusions drawn by Greenpeace Luxembourg in its report “A Climate-Related Analysis of the 100 Largest Investment Funds in Luxembourg”, published on 27 January 2021.

ALFI is fully committed and supportive of the European Commission’s Green Deal which aims to channel private investment into the transition to a climate-neutral, climate-resilient, resource-efficient and just economy, as a complement to public money.

Today, the investment fund and asset management industry in Luxembourg and in Europe is in the final run-up to the first major deadline in the implementation of the European’s Commission’s plan on financing sustainable growth.

ALFI notes that the report from Greenpeace is silent on the European Commission’s Green Deal and the regulations which the Commission’s action plan brings with it.

In Luxembourg, ALFI is likewise supportive of the manifold initiatives that the government has taken over the recent years to foster green finance and push investors towards allocating their savings in ESG and sustainable investment products.

The Luxembourg asset management and fund industry is similarly engaged in different projects and initiatives to further foster ESG/ sustainable finance. This can be evidenced among others by the growth in the number of ESG and other similar labels granted by the Luxembourg labelling agency, LuxFLAG. As at 01 January 2021, LuxFLAG labels 322 investment products with AUM of 135 billion Euros which are domiciled in 10 different jurisdictions and managed by  96 entities located in 16 countries.

As another example, Luxembourg is “the” jurisdiction of choice in the world for micro-finance funds, with a staggering 76% market share in Europe both in AUM and number of microfinance funds[1]. This showcases the emergence of an eco-system in Luxembourg with expert knowledge in ESG funds, sustainable finance and impact investing.

All stakeholders from the private and public sectors, reckon that the transition towards a climate-neutral and climate-resilient economy is a long journey and we are only at the beginning of this process.

Implementing European Regulations: SFDR comes first

By 10 March 2021 at the latest, investment funds and asset managers must comply with the main provisions of the SFDR[2].

All investment funds and sub-funds, in fact all financial products offered to retail and institutional investors, will be required to embed sustainability in some form and shape.

The baseline and minimum requirement is that all investment funds shall describe in their offering documents the manner in which sustainability risks are integrated in their investment decisions. In addition, the likely impact of sustainability risks on returns must be disclosed to investors. These investment funds will be categorised as article 6 products.

Asset managers which will want to offer products in which sustainability becomes the core focus will have two options. Investment funds which promote environmental and/ or social characteristics (ESG)[3] will be categorised as article 8 products. As a second option, investment funds with a focus on sustainability will qualify as article 9 products.

European Commission’s Plan

SFDR is one of the three key regulations on sustainable finance that will be implemented over the two coming years. SFDR and the Taxonomy Regulation are intertwined, as the Taxonomy provides the essential definitions of what sustainability is all about.

Of particular relevance is obviously article 9 of the Taxonomy Regulation[4] which sets out 6 environmental objectives, of which two – (a) climate change mitigation and (b) climate change adaptation, which is the main focus of the report from Greenpeace Luxembourg – will come first. The Regulation explicitly refers to the Paris Agreement which was approved by the European Union on 5 October 2016. It represents a key step towards the objective of achieving a climate-neutral Union by 2050.

These two Regulations are supplemented by the Benchmark Regulation[5].

Consistent and coherent framework in Europe and beyond

Sustainable finance is a core domain of competency of the European Union. The above-mentioned texts are regulation which have, or will have, direct effect in each of the Member States.

Any suggestion that Member States should take additional legislative initiatives, as the report seems to recommend to the Luxembourg government and private sector, which would overlap and potentially contradict European texts, is intuitively counter-productive. There is a definite need of global standards, at least within Europe and to the extent possible, worldwide. Climate change mitigation and adaptation are global issues that must be tackled globally. It is hoped that the European Union as a bloc will be setting the right direction and that European standards could develop into international standards.

In contrast, any additional legislation at the level of each of the Member State bears the risk of preventing all stakeholders from having a coherent and coordinated approach to sustainability, fragmenting markets and ultimately not achieving the transition towards a sustainable economy.

The Luxembourg fund industry has traditionally be a champion of cross-border distribution in the EU and beyond. Asset managers already face significant hurdles when distributing investment funds in non-EU jurisdictions.


In order to get started on the first two environmental objectives – climate change mitigation and climate change adaptation – it is paramount that information from investee companies be made available. Article 8 of the Taxonomy Regulation requires companies to publish in their non-financial statements information to what extent the companies’ activities are fully or partially environmentally sustainable.

On 20 November 2020, the European Commission published a draft of the Commission Delegated Regulation  establishing the technical screening criteria for determining under which conditions an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation.

Given the very technical nature of the content of the Delegated Regulation and the fact that it followed on extensive research, work and recommendations from relevant stakeholders over the past 18 months (reference being made in particular to the work of the Technical Expert Group on Sustainable Finance - TEG), ALFI was of the opinion that this draft already provided a sound basis for market participants to start working on the implementation of this Regulation which will apply from 1 January 2022. ALFI did not respond to the public consultation. There were however in excess of 46,000 feedbacks to the European Commission on this draft Regulation.

The viewpoint of investors     

A strategic objective of SFDR and the Taxonomy Regulation is transparency of products. Investors will be in a position to make informed decisions when buying financial products. This will drive the trend towards more sustainable products. A recent study[6] shows that by 2022, 77% of institutional investors will stop buying non-ESG products.    


The European’s Commission’s plan on financing sustainable growth is a unique opportunity for Europe to position itself as leading the sustainability agenda and driving the transition towards a sustainable economy.

There is no room for diverging initiatives at the level of Member States which could only result in more fragmentation whereas climate change and environmental issues are global by nature.

Once SFDR and the Taxonomy Regulation will have been implemented, investors will have the necessary information to make informed decisions.


For more information, please contact:

Anna Ferreri, Head of the Communications Department


Notes to editors:

The Association of the Luxembourg Fund Industry (ALFI) represents the face and voice of the Luxembourg asset management and investment fund community. The Association is committed to the development of the Luxembourg fund industry by striving to create new business opportunities, and through the exchange of information and knowledge.

Created in 1988, the Association today represents over 1,500 Luxembourg-domiciled investment funds, asset management companies and a wide range of businesses that serve the sector. These include depositary banks, fund administrators, transfer agents, distributors, legal firms, consultants, tax advisory firms, auditors and accountants, specialist IT and communication companies. Luxembourg is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg-domiciled investment funds are distributed in more than 70 countries around the world. For further information, do not hesitate to consult

To keep up with all the news from ALFI and the fund industry in Luxembourg, follow us on LinkedIn, Twitter (@ALFIfunds), YouTube and Flickr.

[1] European Responsible Investing Fund market 2019, KPMG;

[2] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector.

[3] ESG: Environmental, Social, Governance.

[4] Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088.

[5] Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks.

[6] “2022: The Growth Opportunity of the Century. Are you ready for the ESG change”? PwC, October 2020