DOSSIER Sustainable Finance

Through the Action Plan on sustainable finance adopted in 2018, the European Commission set out the roadmap to boost the role of finance in building a European economy in order to achieve the goals of the Paris Agreement and the United Nations 2030 Agenda for Sustainable Development. 

The financial sector has become aware of the important role it has to play in the fight against climate change as well as in the transition towards a decarbonized economy, and European countries are adapting their national legislation to the European regulatory framework, promoting the activity of the financial industry in long-term sustainable growth. 

The COVID-19 crisis has only accelerated this process, and has placed sustainability, together with digitalization, as pillars of the economic recovery in Europe. Accordingly, the Recovery Plan for Europe recently adopted by the EU, will allocate 37% of the resources to the green transition. This plan involves an unprecedented injection of funding for Member States to address the economic and social impact of the COVID-19. As a consequence of the pandemic, it is also expected that governments bonds and public expenditure will increase, and green bonds and other financial products that consider sustainable criteria, are positioned as a key alternative for financing the post-pandemic era. The impact of the health crisis has generally raised public opinion awareness to focus on the need for a just and caring transition towards the protection of the environment and society as a whole, and to raise sustainable finance in the ranking of priorities. 

This dossier analyses the initiatives developed in recent years, in the field of sustainable finance, by two countries that have an efficient and competitive financial sector committed to responsible transition: Spain and Luxembourg. 

Leading stakeholders and professionals from the financial services industry in both countries also share their views on how the new standards will affect the sector, and the mechanisms envisaged for the implementation of the European taxonomy on sustainability


Spain has a diversified, modern and competitive financial system, which is fully integrated into international financial markets.

Following the 2008 financial crisis, the Spanish financial system has undergone a major restructuring process that has established a much more demanding regulatory framework and improved the solvency of the main players in the financial sector. Proof of this is the leadership that the main Spanish credit institutions are playing in the technological transformation processes, becoming world leaders in the future of banking. These institutions play a particularly important role in the financial industry in Spain, due to the volume of their business and their presence in all segments of the economy. 

Spain has a leading position in the world of the sustainable finance industry. The country ranks among the European leaders in the issuance of green bonds, and has the firm commitment of the Spanish financial institutions in this area, which have registered growing activity in recent years in terms of the volume of resources allocated to the financing of sustainable projects or companies. In addition, Spain has many leading companies that promote the integration of sustainability issues into business. Many of them are part of sustainability benchmark index, being leaders in strategic sectors such as renewable energies, infrastructures, water and waste management, electric mobility, etc.

From a regulatory perspective, Spain integrated ESG criteria in occupational pension funds for the first time in 2014, establishing that the statement of principles of the fund’s investment policy had to mention whether extra-financial risks would be considered in the portfolio’s investment decisions.

In 2018, with the Action Plan for the implementation of the 2030 Agenda, the Spanish government set the roadmap for the fulfilment of the 2030 Agenda in Spain. This document was the definitive starting point for raising awareness and involving the financial system in achieving the SDGs. 

In mid-2020, the draft of the “Climate Change and Energy Transition Law” (Ley de Cambio Climático y Transición Energética) was presented, with a 2050 horizon. It included a new element in the national legal system by considering climate risk specifically as a financial risk and required its integration for those entities whose securities are admitted to trading on regulated markets, credit institutions, insurance and reinsurance companies and other companies depending on size criteria. This specifically implies their identification, measurement and management, and the need to include this information annually in a public report of the institution. The draft also envisages that every two years the Bank of Spain, the National Securities Market Commission (CNMV) and the Directorate General of Insurance and Pension Funds will prepare a report on the assessment of the risk to the Spanish financial system arising from climate change.

Sustainable financing via government projects is included in the so-called Plan for the Recovery, Transformation and Resilience of the Spanish Economy in the short term. This Plan guides the execution of around 72 billion euros between 2021 and 2023 and meets the EU Recovery Fund’s priority that “green” investment should represent more than 37% of the Plan’s total.

The issuance of green, social and sustainable bonds increased by 54% in Spain in 2020

According to Climate Bonds Initiative’s (CBI) data, Spain ranked tenth in the world by issue of green bonds in 2020, and the fifth largest in the EU. In this year, Spanish companies, banks, regions and public agencies issued green, social and sustainable bonds totaling EUR 15,024 million that means a 54% growth compared to the previous year according to the annual report of the Spanish Observatory for Sustainable Finance (OFISO). 

Most of the placed bonds were green bonds (63.2%), while sustainable bonds accounted for 19.2% of the total figure. But it was only social bonds that gained weight within the total volume: they accounted for around 18% of the volume issued in 2020, compared to 14% in 2019. This increase is explained by the needs arising from COVID-19 to finance projects in the health sector, social services or employment, and are more usual among public bodies. Also, the growth of the sustainable bond market in Spain has attracted more financial institutions to intermediation, so that in 2020 up to 34 of them have participated in a placement, compared to 25 institutions a year before.  

The perspectives are very positive, and it is expected that the most advanced Spanish companies and financial institutions in the field of sustainable finance will further consolidate their commitment and, foreseeably, their international action in this field, especially in Latin America and Portugal.

Pioneering initiatives in Spain

During 2020, Spain has been a pioneer in the green bond market with the development of the following initiatives:

  • In January, the Spanish multinational company Telefónica issued hybrid green bonds, the first of this category within the telecoms sector worldwide.  
  • The Community of Madrid launched in April the first social bond dedicated to mitigating the effects of Covid-19.
  • In May 2020, the Spanish bank BBVA became the first private financial institution in Europe to place a social bond aimed at mitigating the effects of COVID-19.



The Luxembourg financial centre gained momentum in the 1970s, replacing the steel industry as the driving force of the Luxembourg economy. The country‘s strategic location, in the heart of Europe and its traditional openness to cross-border integration quickly positioned it as an important international financial centre. Currently, its financial sector represents 25% of GDP, 11% of employment and 21% of tax revenue (2019 data).

Luxembourg boasts about having a developed legal and regulatory framework, a strong culture of investor protection and a highly experienced financial regulator. Private banking, the insurance sector and the investment fund industry are the key pillars of its financial services industry.

Luxembourg has long before Paris Agreement been a pioneer in the field of sustainable finance, mainly in the microfinance industry.As a founding member of the EU, the country has always played an important role in the definition of European policies and has actively participated in working groups focused on the financial sector.

It has also contributed to accelerate the expansion of sustainable finance as well as to promote exchanges of experiences at the international level in this field. So much so that Luxembourg was a founding member of the FC4S.

Thanks to close cooperation between the public, private, and civil society sectors, it has built a friendly ecosystem, which is adapted to raising international capital for responsible investments. Furthermore, the country is home to the European Investment Bank, the world’s top green lender and an expert in public-private investment projects. 

In 2018, the government of Luxembourg, together with the United Nations Environment Programme Finance Initiative (UNEP FI), worked on the development of a plan to consolidate the country’s experience in sustainable finance, as well as develop new innovative initiatives in this field. This plan culminated in the launch of a Roadmap to achieve the goals of the Paris Agreement and facilitate financing for the achievement of the SDGs. 

Some of the recommendations of this roadmap were integrated into the Coalition Agreement of the Luxembourg elected government in 2018-2023, including the creation of a coordination entity for sustainable finance. Thus, the Luxembourg Sustainable Finance Initiative (LSFI) was officially launched in January 2020 to promote the development of the local ecosystem and the definition of specific goals in line with the national roadmap. The LSFI’s first official task has been to formulate a Luxembourg Strategy for Sustainable Finance, harnessing relevant activities already being carried out by all financial sector actors in close cooperation with the government and in line with the Roadmap’s ambitions. 

All of them are the backbone of this Strategy and guide the LSFI’s Action Plan with a 2030 horizon, setting measurable and structured achievements over time.

“The LSFI and the Luxembourg Sustainable Finance Strategy have as their main goal to help the financial sector transition towards increased sustainability, raise awareness and promote sustainable finance and Luxembourg’s role as an international sustainable finance hub. The financial sector and the investors can play a crucial role through their investment decisions in shaping a more equitable and sustainable future. To achieve these objectives and as a result of the strategy, we have started by raising awareness through our website, newsletter and social media. We are also producing explanatory videos and mapping the existing initiatives to help the stakeholders navigate the sustainable finance landscape. Besides, we are about to coordinate a climate scenario analysis of the financial industry to help the banking, insurance and investment funds sectors better understand where they stand with respect to the Paris Agreement goals."
Nicoletta Centofanti
LSFI Sustainability Adviser
Luxembourg Strategy for Sustainable Finance

In order to implement the Strategy, the LSFI’s Action Plan is based on three main and interdependent pillars. For each pillar, the Strategy identifies actionable goals to be addressed in the short- (1 yr., by 2021), medium- (2-4 yrs., 2022-2024) and long-term (5-10 yrs., 2025-2030). These goals are flexible and open to the evolving requirements of the various public needs and private stakeholders’ opportunities. To reach these objectives, the LSFI will be working in close collaboration with financial stakeholders, avoiding duplication of existing initiatives and ensuring areas of synergy.

The 3 pillars of the action plan are summarized below:

Awareness & Promotion
  • Formalise and communicate an ambitious, tailormade and clear sustainable finance strategy.
  • Set up a coordinating entity.
  • Raise awareness.
  • Lead by example and ensure proof of concept.
Unlocking Potential
  • Leverage financial sector expertise.
  • Integrate sustainability into education and professional training.
  • Develop expertise and best practices.
  • Analyse and redesign the system of incentives and taxation.
Measuring Progress
Luxembourg has a platform dedicated exclusively to green, social and sustainable bonds

Luxembourg was a pioneer in the incorporation of sustainable finance into capital markets. In 2007, the Luxembourg Stock Echange listed the world’s first green bond which was issued by the European Investment Bank. Green bonds have their own platform since the launch of the Luxembourg Green Exchange (LGX) in 2016, dedicated exclusively to green, social and sustainable bonds.

With more than 900 sustainable bonds totalling EUR 440 billion, LGX plays a crucial role in facilitating sustainable investment across the world. LGX is the world’s leading platform for sustainable securities and helps reorient capital flows towards investment projects with positive social and environmental outcomes.

In 2020, LuxSE established the LGX DataHub, a centralised data hub of structured sustainability data, covering close to the entire universe of listed, sustainable debt securities worldwide. The LGX DataHub provides asset managers and investors with access to the data they need to build sustainable investment strategies and report on these investments.  Also, the LGX Academy was launched in 2020 with the aim of promoting sustainability knowledge across the financial sector and training the new generations.

In February 2021, LGX added a section dedicated to Climate Bonds-LGX Climate Aligned Issuers. This section features companies that derive their revenues from environmentally friendly activities, and thereby highlights untapped investment opportunities in the broader sustainable investment universe.

Through its platform and its focus on awareness, education and data, LGX contributes to making sustainable finance mainstream across the world. 

Almost 200 sustainable investment vehicles, from promoters from 16 countries, have obtained LuxFLAG labels

The Luxembourg Finance Labelling Agency (LuxFLAG) is an agency that aims to promote the raising of capital for sustainable investments by awarding a recognisable label to eligible investment vehicles. This independent and non-profit association was created in 2006 to reassure investors that the labelled investment vehicles invest in the responsible investment sector. The applicant may be domiciled in any jurisdiction that is subject to a level of national supervision equivalent to that prevailing in European Union countries. Labelling is available for international investment vehicles, regardless their country of domicile or issue.

LuxFLAG labels stand out because they are subject to independent expert assessment by a qualified eligibility committee and because they have earned recognition around the world. LuxFLAG provides five different labels: Microfinance, Environment, ESG, Climate Finance and most recently, a label for Green Bonds.

As of March 2020, 196 investment vehicles from promoters from 16 countries boasted LuxFLAG labels.

Sustainable investments

In 2019, Luxembourg responsible investment fund assets accounted for 31% of funds and 39% of all assets under management (KPMG, 2019: “European Responsible Investing Fund market 2019“). 

In order to support asset managers in launching new projects to mitigate or manage the effects of climate change, the government of Luxembourg, together with key industry players, has promoted the creation of the International Climate Finance Accelerator (ICFA). This accelerator offers various forms of support, including help in fund raising from institutional and public investors, as well as financial and operational support during the launch phase of a new fund structure.

In addition, the country has developed over the years a wide range of investment funds and is a leader in their global distribution, with funds offered in more than 70 countries around the world. This is one of the strengths that define it as a financial center, allowing promoters to create the structure they need, adapted to the nature of the investment and the target investors, and have the European passport for distribution.


Expert Views

The opinion of the SFF Members

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