In an age where environmental, social and governance (ESG) opportunities and concerns abound and become more relevant for an increasingly growing client base, having the options for reconciling ESG considerations with banking, lending and financing arrangements is key for banks to satisfy client needs and requirements. On top of substantiating client expectations, regulatory pressure in the form of the upcoming MiFID II ESG suitability requirements, as well as disclosure obligations arising out of the European Commission’s (EC) Action Plan for Sustainable Finance shape the thinking process of banks when designing new products or restructuring the existing product offering.
Against this background, the ABBL and its members are working on examining the currently available ESG financial products and services, with a focus on lesson learning opportunities, the nature and transferability of best practices, and how key designs can potentially increase market share and generate profits, while improving brand recognition and enhancing reputation.
A dedicated working group, under the auspices of the ABBL Financial Markets Committee and the ABBL Sustainable Finance Task Force, has since been set up to work together on Luxembourg industry solutions for addressing the clients’ expectations. The main challenges for banks will be to create effective and far-reaching market-based solutions to tackle a range of ESG related problems (e.g. climate change, gender equality, child labor, etc.), while at the same time identifying and securing new business opportunities that benefit customers. By shedding light on best practices and lessons learned in the world of ESG financial products, the ABBL Working Group endeavors to help financial institutions further this quest towards true and profitable sustainability.
As part of these efforts, the new working group will also analyse the possibility to create and operate one or more dedicated labels for ESG compliant banking products. To such extent, the Luxembourg labeling agency LuxFLAG is also an integral part of the working group and shares their extensive experience with regard to ESG compliant fund products.
By Gilles Walers, Legal Adviser, ABBL