Luxembourg: Sustainable Finance: Speaking The Language Of The Customer

Last Updated: 12 October 2018
Article by Laetitia Hamon

Most Read Contributor in Luxembourg, September 2018

A number of disruptive changes are currently affecting the fund industry, not least of which is the rise of sustainable finance. How can it be that everybody is talking about sustainable finance as the future of the industry, but that such a small proportion of retail investors are actually buying sustainable products?1 Could this all be a distribution issue?

Over the past 10 years, sustainable finance has been very much looked at through the prism of both asset managers and institutional investors; however, the debate largely missed out the very end of the investment chain before the client itself—the financial advisor, the one actually giving investment advice.

Under the existing MiFID II framework, firms providing investment advice and portfolio management are required to obtain the necessary information about the client’s knowledge and experience in the investment field so as to provide services and products that are suitable for the client. While this suitability assessment generally relates to financial objectives, it does not address the non-financial objectives of the client, such as environmental, social, and governance (ESG) preferences.

This is about to change as, in its final recommendations report, the HLEG2 has specifically requested that investment advisers "ask about, and then respond to, retail investors' preferences about the sustainable impact of their investments, as a routine component of financial advice.”

In response to this, the European Commission has launched a consultation process to assess how best to include ESG considerations in the advice that investment firms and insurance distributors offer to individual clients. The idea is to amend delegated acts under MiFID II and IDD3 so as to better address non-financial considerations in financial advice.

Now comes the trickiest question—how can financial advisors assess the ESG preferences of their clients? The questions we are asking clients are a good place to start. If you pose the question "Are you interested in sustainable investing?" then the answer is likely to be a resounding "yes." A 2017 study carried out by Morgan Stanley4 shows that 75% of individual investors are interested in sustainable investing, with a higher rate of 86% among millennials.

But of course, reality is a little more complex than that. Sustainable investing comes in many different shapes and forms—the strategies and end objectives are as diverse as you can imagine. They can range from excluding certain sectors or assets to using voting rights; from integrating all sorts of ESG criteria, to even measuring the real ESG impact of portfolios. It is a maze of terminologies and I suspect that some sustainable finance experts enjoy maintaining the confusion.

However, as time is money, purchasing decisions are taken fast, especially online. Customers compare funds in the same way as one might compare hotels when planning a holiday: they look at a range of criteria in line with their suitability preferences. Retail investors do not have the time, and may even not be willing, to understand all the breadth and depth of sustainable finance, and what the various categorisations mean.

Don't get me wrong. The European Commission has ambitious plans that will also help move the situation forward, for which they must be applauded. Coming up with a taxonomy to categorise what should be considered as green or sustainable would be one of the most courageous (and necessary) moves ever taken by the Commission. It would not only force asset managers to be clearer about the status of their funds, but also allow investors to check whether the invested assets are truly sustainable, and if so, in what way. However, the risk is that the terms chosen are as confusing to the investor as the present system is. Would your average customer really know what to answer if asked whether they would like to invest in a fund that pursues "an ESG integration strategy," or a fund that "follows a 'Best in Class' approach"?

So what is the answer? I think we need to move away from trying (and often failing) to explain what sustainability is, and move towards real clarity. Let's keep it simple, as they say. Questions could then be: is there a specific sector which you do not want to invest in? Would you prefer to invest in sectors like renewable energy, affordable housing, or infrastructure? Do you prefer to invest in funds that are listed on a dedicated green exchange? Would you like them to hold a quality label? Do you prefer funds that will report on the non-financial aspects of your investment, like social impact?

This would, I believe, facilitate the work of financial advisors and remove the subjectivity and confusion that arise under the current system.

In a nutshell, the less subjective the questions are, the better. Moving to this new model, however, will require changes from all stakeholders. Investment managers will have to provide easy-to-understand and straightforward extra-financial data (not tons of CO2 equivalents that the investors do not understand). Information providers will need to adapt their databases to include additional fields, and financial advisors will need to improve their knowledge of ESG funds. Last but not least, the European Commission will need to provide robust technical guidance so that suitability questionnaires related to ESG preferences are standardised across member states.


1 The HLEG report highlights that "Despite their rapid growth, ESG funds represent less than 2% of the overall European retail funds market," p27, HLEG Final Recommendations report, 30 January 2018

2 High Level Expert Group from the European Commission

3 Insurance Distribution Directive

4 Sustainable Signals, Morgan Stanley institute for sustainable Investing, August 2017, which surveyed 1,000 individual investors in the US

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions