“We were set up with the mission of helping the financial sector transition towards sustainability,” says Nicoletta Centofanti, CEO of the Luxembourg Sustainable Finance Initiative (LSFI) who opens our conversation explaining the origins of the organisation, which with the support of its Impact Investing Advisory Board (IIAB), became a national partner of GSG Impact in December last year.

“We are a centre of excellence and knowledge hub on sustainable finance and aim to unlock the sector’s potential, channel more capital flows towards sustainability projects and activities, as well as measure progress,” she adds.

LSFI was launched in 2020 as a public-private partnership by the government alongside Luxembourg for Finance, the agency responsible for developing Luxembourg’s financial centre, and the High Council for Sustainable Development, which advises the government on sustainable development policy. Last year, LSFI decided to set up its IIAB to act as an independent advisor as well as a think-tank, to help accelerate impact investing in the country.

“As CEO of the initiative I thought it was really important to start integrating the impact investing dimension, which is the ultimate goal of sustainable finance, especially as we get closer to the 2030 ambitions,” she adds in reference to the UN’s 2030 Agenda.

Without specific expertise in impact investing, LSFI issued a call for applications for impact specialists to form the future IIAB. One of the people to answer that call was Gunter Fischer, who today acts as the IIAB chair, outside his day job as principal advisor to the European Investment Bank (EIB).

“We bring competence on impact investing matters to the LSFI table, which includes specialised knowledge from different parts of the Luxembourg ecosystem,” says Fischer who explains the key motivation for applying to join GSG Impact, was to tap into its international network as well as into the resources and work done by other national partners.

Short-term priorities

Under a year into its existence, IIAB has focused its immediate efforts on articulating its mission. The organisation’s mission centres on finding ways to engage with, influence, guide and mobilise interest and capital from Luxembourg’s financial sector for impact investing.

“It’s really about information sharing, providing the basis for impact investing, with the ultimate goal of mobilising more private, retail and institutional resources for impact investing,” he says, explaining that IIAB has set up several workstreams, including one that is working on the definition of impact investing in the Luxembourg context.

“With LSFI as a partner of GSG Impact, we are seeing whether the definitions that already exist are applicable in the Luxembourgish context, whether any adjustments need to be made.”

LSFI, which publishes a yearly market sizing report looking at the state of the broader sustainable finance sector in Luxembourg, will now also task IIAB to use any definition reached as the basis for conducting a comprehensive mapping exercise of Luxembourg’s impact investment ecosystem.

Long-term goals

Over the longer term, the IIAB wants to turn its attention towards regulation and already has a workstream in place focusing on regulation and regulatory tools. Fischer says that with the second biggest fund sector worldwide and with more than half of all alternative assets funds domiciled in Luxembourg, the country had an outsized weighting in regulatory importance.

“This is an element we want to work on in Luxembourg but also in the wider context, looking at how Luxembourg can contribute to EU regulations, whether, for example, there is an opportunity or appetite for the creation of Luxembourgish-specific impact investment fund vehicles to mobilise capital towards the asset class,” he explains.

There is also a workstream dedicated to education and advocacy.

Leveraging Luxemburg’s financial centre

Fischer says the size of Luxembourg’s investment fund market made it a hotbed of opportunity for impact investing, explaining that the single biggest trend in financial markets over the last 10 years has been the strong development of the alternative asset market.

“Within this, alternative assets in the areas of private equity, venture capital, private debt and infrastructure have developed over proportionately,” he says, adding that he is convinced this trend presents a major opportunity for Luxembourg given the potential of alternative assets to drive impact.

“We have also seen more front-office decision-making moving to Luxembourg. This positions Luxembourg advantageously for impact,” he adds.

Fischer says that having been set up and funded by two ministries, LSFI and by proxy the IIAB were in a favourable position.

“Our unique set-up gives us access to the public executive and to regulators. This, perhaps, provides us with greater potential for influence compared to other national partners in the impact investment context,” he adds.

Luxembourg’s impact ecosystem

Perhaps the best-known impact investors in Luxembourg are the European Investment Bank and the European Investment Fund, both of whom are headquartered in the country’s capital.

“We also have big pension funds here. Some of them have a very conservative approach for the time being. We would like to engage with them and make it clear that there is not always a trade-off between return on investment and meeting impact goals,” says Fisher

On the supply side, he mentions development NGO ADA (Appui au développement autonome), which is represented on IIAB as well as the International Climate Finance Accelerator (ICFA) and the International Social Finance Accelerator (ISFA), both of which were set up by the government to support first-time impact fund managers.

Among a number of other impact investment stakeholders, Fischer highlights the important role played by impact-focused service providers, such as Innpact, which he says play a critical role in assembling actors from across the impact ecosystem to develop and structure products.

“Overall, we have a very dynamic environment with appetite for impact. This is supported by the Luxembourg government providing a regulatory framework but also capital where it is needed” he says.

Centofanti draws attention to LuxFLAG, which she says was one of the first European organisations dedicated to labelling microfinance funds and the Luxembourg Green Exchange (LGX), a platform of the Luxembourg Stock Exchange dedicated to green, social and sustainable securities, which she says could play an increasingly important role in the future.

“Luxembourg’s history in impact investing can be traced to its origins as a microfinance hub. It is also home to LGX, the first exchange solely dedicated to sustainable finance securities. This is one of the key tools we have to finance sustainability and hopefully, impactful projects,” she adds.

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