Adopting a less egoistical behaviour
“Although not everything that had been happening in the financial world was bad, there were certainly a number of things that increased or intensified the crisis. They had to be reviewed and therefore the term of sustainability that came up was postponed until 2008.” These were some of Luc Frieden’s thoughts in London at a conference organised by City of London and Luxembourg for Finance. Luxembourg’s minister of Finance has discovered that bankers tend to copy things from the world of environmentalism more and more.
In the 1980s, the Brundtland Commission of the United Nations defined sustainable development as taking into account the needs of the present without compromising the ability of future generations to meet their own needs. So it is about thinking of the present while at the same time keeping the future in mind. According to Luc Frieden, sustainability and sustainable finance mean having stable finances aimed at a long-term perspective.
“First and foremost, it is about regaining confidence in the financial world, which is something that maybe we do not recognise that much. I think to a large extent the citizens, the investors, have lost confidence and therefore, we have to gain back this confidence by creating a more sustainable environment.”
The Minister of Finance adds that it is also about reintroducing the concept of ethics and of responsible behaviour into the financial world. At the same time, sustainable behaviour should not only be seen as a new business opportunity but as a new vision for financial services on the basis of certain universally-accepted principles like fairness and transparency. “In fact, there is nothing negative about making money, but making a profit while doing good things is what we should aim for. We should make a profit by adding new products that will give us opportunities to develop our business activities”.
Hoisting the flag
Private banking and investment funds are the main pillars of Luxembourg’s financial centre. In these activities, long-term perspectives, and at the same time development of new products, can play an important role. Luc Frieden has always attached an important role to sustainable finance and illustrates his thoughts with a couple of examples.
“We started mainly with microfinance investment funds where, of course, a lot of different funds were established over the years. It was important for us to give a certificate of quality to those investment funds that complied with a number of strict rules to make sure that these were really aimed at high quality microfinance investment funds and therefore we established the organisation called Luxflag, which certifies funds in the area of microfinance, and in the area of business-oriented environmental investment funds”.
Another example is the ATTF, which is an agency for the transfer of finance technology in which people from developing countries are trained on the concept of sound finances of sound financial products. To Mr Frieden, this is part of a broader concept, which is not something that you can just have in one country, but something that should be shared with those living in others countries, especially in this era of globalisation.
The Luxembourg government practices what it preaches: 1% of GDP goes to development aid, while 30% of Luxembourg’s GDP comes from the financial services sector. In the area of a more traditional ethical and socially responsible behaviour, the Luxembourg Foundation, Fondation de Luxembourg, has been set up, to advise clients from the private banking sector in philanthropy, especially when it comes to international activities.
Because a country like Luxembourg, with such an important financial centre has a special responsibility, a working group with all stakeholders will be set up to define what exactly sustainable finance will mean in the future and to develop an action plan where stakeholders can contribute with new services in the financial services sector. Socially responsible behaviour is not only for people working in the banks, it is also important for investors, supervisors and governments.
“Sound public finances are the prerequisite for long-term sustainable growth, that is true for the Eurozone but I would say that is also true for the countries that are living close to the Eurozone, including the country which hosts us today.”
Luc Frieden considers London and Luxembourg friendly competitors and very much appreciates that both financial centres, the most international ones in Europe, work together on the issue of sustainable finance. “I think that new products are indeed coming out. We see it in portfolio management, we see it in investments funds, we see it when we look at this dynamic city of London and we see it when we look at the Luxembourg financial centre.” CW