Luxembourg has emerged as a global leader in sustainable finance in no small part because of the close relationships of its environmental and finance leaders. A lot can be said for the fact that the European Investment Bank is located just across the street from the Ministry of Environment, Climate and Sustainable Development and that the capital is small enough to run into peers unplanned.
At the latter ministry, André Weidenhaupt, as First Councilor of Government, is one of the people often standing at the intersection of these two spheres and helping them bridge to one another. Here, he discusses how that’s manifesting in Luxembourg’s progress in using money to help reduce its environmental impact as well as that of the world at large.
This interview has been edited for clarity.
Growing up in Luxembourg, what did nature mean to you?
I grew up in the 60s or the old 70s in the southern part of Luxembourg. At that time, the steel industry still was still very polluting. But we took a lot of walks with my father, in the south and in the north, which was still very basic nature. We also went as school kids playing in nature.
Why did you decide to focus your career on the environment?
Maybe it was these walks. And then as well we had at that time the so-called Mouvement Écologique, which is a member of Friends of the Earth. They started youth programs, and so I participated in some of their camps. And, funny to say, my chemistry teacher –
he also was very much engaged in the Mouvement, and he also fascinated a small group of us in the class to be interested in environment issues.
How have you seen the field of sustainable finance change over the course of your career?
When I was in school, or even when I was at university, sustainable finance was a non-existing issue. When I did my PhD in environmental sciences at the Swiss Federal Institute of Technology, in the Swiss financial sector there was the emerging of a company called Sustainable Asset Management. I was very interested in that. But when I came back to Luxembourg in the late 1990s, this was completely inexistent in the Luxembourgish financial ecosystem.
Since then things have changed a lot. I think the emergence was the European Investment Bank (EIB) that started issuing green bonds and issuing them at the Luxembourg Stock Exchange (LuxSE) and the Stock Exchange getting somehow implicated in the issuing of green finance instruments. And that was soon not exclusively the EIB’s green bonds but also green bonds from other E.U. countries and from other parts of the world. So basically Luxembourg [became] the hub for half of the green bonds for assets that are listed worldwide. This also helped to create another ecosystem – the one of microfinance in Luxembourg. And from these two, I think the Luxembourg sustainable finance sector grew up.
What do you hope that the 2019 UNEP-FI Roundtable and finance-focused Global Landscapes Forum will achieve?
I think the UNEP-FI Regional Roundtable on Sustainable Finance next week will, so to say, wrap up what’s going on in mainstream sustainable finance. Bridging one day later with the Global Landscapes Forum I think is an important element, because global landscape finance is less mainstream than other parts of sustainable finance and definitely less mainstream than international climate finance.
I think globally we have not only a climate crisis but also a biodiversity crisis, the extinction of species. That’s a real difficult issue to tackle. And, in addition, a global resource crisis. I think the additional themes that we bring in with the Global Landscapes Forum and some of the panels at the Regional Roundtable will help bring these issues to the more mainstream sustainable finance people.
What input is Luxembourg seeking from other countries and actors that will be present at the meetings, and what lessons learned does Luxembourg wish to share?
Even though we are considered by some to be leaders, we are only few. Basically where Luxembourg is leading is in attracting private investors into areas usually led by the either public investors or by multilateral investors – multilateral banks like World Bank, the EIB or other actors that are very active in this field. And we think it’s important to attract private investors for these less-mainstream areas of sustainable finance. I think it’s very promising that we have key actors in these fields coming to Luxembourg.
Luxembourg is a leader in many areas of sustainability, with ambitions to transform its energy, transportation and building sectors. How is progress going on these goals?
In building, we are very progressive when it comes to new buildings. The standards are very high, and they are mandatory. Every single new building that is built in Luxembourg for housing is a passive house, so it has net-zero energy and net-zero CO2 emissions. Yet we have a long way to go for the existing building sector, and that’s not easy.
We have estimated that to be on track for our 2030 emissions reduction goals, we need a renovation of 3 percent of the houses per year and to renovate them at least up to 72 percent energy efficiency. That’s a huge workload, and that also means convincing people that are living in their houses that they might have renovated 20 years ago to move out and do further renovations. That’s not an easy job.
In public transport, we are investing a lot. We are looking forward to there being new electric cars on the market because we have ambitious goals for electric mobility, but the offer needs to be there. If you only come with a subset of 10 different cars that you can buy – maybe I’m under-exaggerating, but not a large choice – then Luxembourgers, who tend to have always the newest cars, will not switch. If the fleet is much broader, than I am convinced that Luxembourgers will switch into electric mobility, and this will help us a lot.
Another sector that is very tricky is fuel exports, which can only be tackled by tax rises. That’s a tricky political decision to be taken.
How does consumer behavior come into play with these goals?
Consumers very easily accepted the new buildings mandatory targets that we set. They have been mandatory since 2017. Transport is obviously a matter of habit changes. People that are living in this region are used to being in traffic jams. With public transport, it would be easy easier to get them off the road, and an important step in this field will be the free public transport coming as of 1 March 2020. And another switch would be getting away from combustion engine cars to electric or comparable, like hydrogen-driven cars. But as I said, the offer is not yet adapted to Luxembourgers’ consumers habits.
Can you talk about your collaboration with financial institutions based here in Luxembourg?
We have set up three years ago a new platform with the EIB. That’s called the Luxembourg-EIB Climate Finance Platform where Luxembourg does the de-risking for more innovative funds that attract private investors into climate finance projects. These private investors would maybe not be attracted [otherwise] because the risks would be too high.
EIB could not have done this without one of the member states, as they cannot de-risk on their own. So that was a very mutual profit. We profit from the EIB, because they have much more expertise as the EU’s bank than our small Luxembourg environment ministry has, and they profited from us coming with a vehicle that they were not able to put on the market on their own.
The Luxembourg Stock Exchange is much smaller than the EIB obviously, but one of the bridge-builders to help the Ministry of Finance and the Ministry of Environment, Climate and Sustainable Development approach each other in the field of sustainable finance, which is a shared competence between the two ministries. This means it is to be done in coordination with the respective other ministers. It’s an institutionalized collaboration anchored into the government agreement.
What landscapes need sustainable investment most?
Landscapes are under threat in several regions of the world, and in regions where capturing carbon is very important. And for this very reason, it’s important to manage them in a way that we at least maintain their ability to capture carbon, if not increase their ability to capture carbon. We have launched the so-called Forestry and Climate Change Fund that focuses on the sustainable management of secondary forests in Central America.
Getting some economic value from these forests is not impossible, but only in a way that makes the CO2 emissions at least net-zero if not negative while still helping local communities earn money by harvesting in a very sustainable way. I think that’s very important and needed also at a larger scale, because some countries are really threatening for the global planet when it comes to landscape management.