LUXEMBOURG Law and Practice Contributed by: Andreas Heinzmann, Hawa Mahamoud and Eva Jean, GSK Stockmann
1.6 ESG/Sustainability-Linked Lending Following the COP21 agreement and UN Sustainable Development Goals, sustainable finance has become a key focus in Luxembourg, a leading international hub. In 2018, Luxembourg established the world’s first legal framework for green-covered bonds. In April 2024, the government confirmed a 10-point action plan to strengthen its role in funding ESG-compliant projects. Initiatives taken at the level of the European Union, such as the EU Action Plan on Sustainable Finance, have created a certain number of regulatory standards for professionals in the finance industry (notably, the ESG disclosure requirements deriving from Regulation (EU) 2019/2088 and Regulation (EU) 2020/852), apply- ing also to Luxembourg market players. Regulation (EU) 2019/2088 of 27 November 2019 on sustainability-related disclosures in the financial services sector (the SFDR), laying down harmonised rules for financial market participants and financial advisers on transparency with regard to the integra- tion of sustainability risks and the consideration of adverse sustainability impacts in their processes and the provision of sustainability-related information with respect to financial products, applies to, among oth- ers, credit institutions providing portfolio manage- ment. While market participants were required to comply with most of the sustainability-related disclo- sures laid down in the SFDR as from 10 March 2021, as from 1 January 2022. The European Commission plans to introduce a new legislative proposal to amend the SFDR in Q4 2025. Regulation (EU) 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 (the Taxonomy Regulation) applies to, among others, credit institutions providing portfolio management. It aims to provide transparency to investors and busi- nesses and to prevent “greenwashing” by defining and harmonising at the EU level the criteria follow- ing which a financial product or an economic activity could qualify as “environmentally sustainable”. Following the requirements introduced by the Tax- onomy Regulation, financial market participants that
Although the majority of high-yield bonds listed on the LuxSE are governed by foreign laws, market players are now more frequently choosing Luxembourg law to govern high-yield bond issue documentation. Further- more, thanks to a stable and reliable legal framework, Luxembourg vehicles are often used for the issuance of high-yield bonds. Furthermore, large European institutions like the Euro- pean Investment Bank (EIB), the European Investment Fund (EIF) and the European Stability Mechanism (ESM) have opted for Luxembourg law as the gov- erning law of their instruments. The EIB chose Lux- embourg law to govern its digital bond, whereas guar- antees provided by the EIF are typically governed by Luxembourg Law. Additionally, since October 2020, the European Stability Mechanism chose Luxembourg law as the governing law for the issue of its euro- denominated bonds. This trend is viewed as a sig- nificant endorsement of the Luxembourg legal frame- work and is likely to reassure a wide range of issuers, including supranational debt issuers, who frequently use the LuxSE as a listing venue for sovereign bonds. It encourages a shift away from foreign jurisdictions towards Luxembourg law for the issue of debt instru- ments admitted to trading and/or listed on the LuxSE. 1.4 Alternative Credit Providers The granting of loans is, in principle, a regulated activ- ity, the performance of which requires the holding of a licence from the CSSF, as further detailed in 2.1 Providing Financing to a Company . Despite the above, the Luxembourg loan market, as the main domicile for non-bank financial institutions in Europe and thanks to a booming alternative finance industry, continues to see strong growth in alternative credit providers (such as securitisation vehicles and regulated or alternative investment funds) benefiting from exemptions to licensing requirements (see 2.1 Providing Financing to a Company for the scope of exemptions). 1.5 Banking and Finance Techniques See 5.4 Restrictions on Target on the change of the Law of 10 August 1915 on companies, as amended (the “Companies Law”), following the adoption of draft bill No 7791.
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