The sustainable finance sector is growing exponentially: counted in billions of dollars today, it is expected to reach trillions in the next five years. “This trend is driven by two main factors,” explains Nicolas Mackel, CEO of Luxembourg for Finance (LFF), the agency for the development of the financial centre and one of the hosting partners of this year’s Cleantech Forum Europe.
“Firstly, many investors – in particular millennials and large institutional investors such as pension funds – have realised that the move towards sustainable finance is an existential question: we need to stop doing harm to the planet, and invest in activities that have a positive effect,” he continues. “Secondly, many people also start to see that green finance also makes sense from a business point of view. The transition from traditional manufacturing and processing to new, more climate-friendly and sustainable methods, needs to be financed, and this opens attractive opportunities for investors.”
Luxembourg: a global centre for green finance
Luxembourg has been an important green finance hub for several years already. According to LFF, 35% of assets invested by European investment funds into renewable energy projects are managed via Luxembourg investment funds, and the country is the world’s largest listing venue for green bonds. 50% of all green bonds are listed at the Luxembourg Stock Exchange.
Luxembourg’s leading position has developed quite naturally. We have a long track record of being first in many areas, such as being the earliest to list green bonds.
“Luxembourg’s leading position has developed quite naturally,” says Mr Mackel. “As we are anyway an important financial centre for investment funds and capital markets, it is not astonishing that a lot of the new trends, such as the pivoting towards green and sustainable finance, to a large extent happen here. A second factor is our openness to innovation, not only in technology but also financial innovation. We have a long track record of being first in many areas, such as being the earliest to list green bonds. Being a first mover very often gives us a leading market share.”
Sustainable finance as a competitive advantage
Luxembourg-based private equity firm ORAXYS is one of the forerunners in sustainable finance. “We created Oraxys more than 10 years ago, and at that time it was not a matter of surfing on the wave. We were really a pioneer in our choice to focus on sustainability,” recalls Managing Partner Grégory Fayolle, who will be one of the keynote speakers at the Cleantech Forum Europe. “We decided to create a specific investment vehicle aimed at helping European companies develop new solutions that would benefit resource efficiency, health and/or the environment. For me, it was obvious that creating a network, knowledge and know-how in this specific field would give us a competitive advantage.”
We were really a pioneer in our choice to focus on sustainability.
Oraxys targets a range of sectors, for example green chemistry, waste management, eco-materials, organic food, healthy living solutions, IT and smart electrical equipment. Its first fund, Oraxys Environment 1, has by now a successful track record of investing in 9 companies. One of them, Luxembourg-based door and window specialist WAKO, employs approximately 100 people in its factory in Redange. “With the right windows, you can save up to 40% of the energy consumption of a building. The solutions offered by WAKO are thus a great example of how to combine economic benefits for the customer with environmental gains,” Mr Fayolle points out.
During the Cleantech Forum Europe, LFF will in particular welcome the investors from Luxembourg and beyond that participate in the event. “We joined the forum to connect the financial industry with cleantech companies that are looking for investments,” says Mr Mackel. “We want to build a bridge between the financial world and cleantech firms that have high-potential projects but need financing to be able to succeed.”
Luxembourg is a great place to be an entrepreneur.
As a representative of the investor community, Mr Fayolle is quick to point out that finance is not the only reason why it might be worthwhile for cleantech companies to visit Luxembourg. “Luxembourg is a great place to be an entrepreneur,” he says enthusiastically. “Government officials and administrations are more pragmatic and agile than in many other countries. The legal, tax and regulatory environment remains consistent over time, and it is an excellent location for subsidiaries that sell all over the European market. It is so easy to go to France and Germany in the course of a single day, and the highly international workforce here is both multicultural and multilingual. On top of this, the quality of life in terms of security, education, international connections and local infrastructure for families is outstanding. I think that both start-ups and larger companies could find much of interest in Luxembourg.”
Photo: © Luxinnovation/Sabino Parente