Sustainable transition and sustainability go hand in hand

Bryan Ferrari talks to his three guests about financial and economic sustainability. Anne-Marie Loesch is Head of Sustainability & Business Development at the Chamber of Commerce, Michel Wursteisen is QSHE Security & Compliance Manager at Wallenborn Transports SA and Romy Reding is ESG Project Manager at Spuerkeess and co-responsible for the Transition Enabler programme.

How can finance be a driver of sustainable transition and what tools are available to companies to better anticipate these challenges? Together, they deciphered the impact of ESG standards on companies' competitiveness and financing.

Bryan Ferrari: Let's talk about sustainability. Not necessarily for the world of finance, but for the world of business. Because the business world has needs and demands, too. What are they?

Anne-Marie Loesch: In finance, the ESG regulatory agenda is quite important. This now also concerns companies, especially when it comes to sustainability reporting. ESG reporting: environmental, social and governance. It should be noted that not everything is new: some obligations date back to 2014. Some companies, such as Arcelor Mittal, have been doing this kind of reporting for a long time. But we realised that there were a number of limits to this regulation in terms of standardising information and greenwashing, because there were no standards. That's when a new era was born. The era of the Green Deal. Europe set itself a number of fairly ambitious targets in terms of climate neutrality and introduced the CSRD, the Corporate Sustainability Reporting Directive, to create a lever to achieve them.

The aim was also to simplify access to ESG data and create greater transparency to redirect capital towards sustainable investments and projects. Another new feature is that it has introduced standards so that every company has to report the same things. This data must be comparable, so that companies can stand out from the crowd on the basis of their performance in these areas. It also introduces an audit obligation with a limited level of assurance. For companies not directly affected by this directive, a voluntary standard has been introduced – the VSME, Voluntary Standards for SMEs.

Bryan: Phew, that's a lot in one go! (laughs) So, in short, the aim of this CSRD is to increase the quality of companies and data, to promote transparency and to be able to compare the various players with each other. But recently there has been an earthquake..

Michel Wursteisen: Yes, absolutely. Until a few days ago, we were subject to the CSRD. Today, legally speaking, we no longer are. But we still are. Why? Because we're part of the value chain of even bigger companies, and the demands they make of us in terms of sustainable development mean that we're obliged, in inverted commas, to follow the approach we've already had for many years. Because it's true that in the world of transport, when we say sustainable development, we immediately jump to CO2 emissions, but we're a long way from simply dealing with CO2 emissions. We're talking not only about the environment, but also about the social and governance aspects. It's much more than CO2.

Bryan: Could we say that it was the developments in the United States that caused Europe to take a step backwards on the regulatory front?

Loesch: Generally speaking, there has been a rethink on these points in Europe; there have been the Draghi reports and other studies commissioned by the European Commission, which are now focusing on the competitiveness of the European continent. There are those who say that the regulations that have been put in place at European level in recent years have a negative impact on this competitiveness. I think it's important to note that decarbonisation remains high on Europe's competitiveness compass. So these are not issues that have been called into question, but they have been overtaken by other issues. Innovation, competitiveness in new technologies such as artificial intelligence, but also safety. To achieve Europe's objectives, I think that what has been put forward is the reduction of administrative burdens.

Bryan: So, as mentioned, large companies still have to join the CSRD and small companies can do so voluntarily. The work we've done hasn't been in vain…

Wursteisen: Absolutely not, because if I now talk about our value chain, everything is going in the right direction. Our customers are asking for us to do this, so our entire value chain is affected. I'd also like to pick up on the previous question, which asked whether the situation with the United States had had an impact on the European decision to put the brakes on DSRA. Personally, I see things a little differently, in the sense that today, if we talk about energy independence, we have big blocks. The Russian bloc is oil and gas, the United States is oil and gas, the Chinese are coal and all other kinds of energy. They plan to start up 150 nuclear reactors in the next few years. The Arab countries are all about oil, as everyone has known for decades. What about Europe? That's a good question. In my view, the CSRD path that has been taken is a very, very, very good one. Because basically, if you don't have energy, you can't do anything.

Bryan: Even if a lot of SMEs don't have to adhere 100% to this CSRD, it's still a super important aspect, because suppliers, customers and probably also the banks ask a lot of information from SMEs… Right?

Romy Reding: That's right. That's the role of the banks in this area. The European Commission has given the banks a driving role in the energy transition, in particular to direct funds towards increasingly sustainable and green projects. As a bank, we have set ourselves the objective of supporting our business customers and raising their awareness of this energy transition. In our view, the challenges for businesses include knowing what data is of interest to their stakeholders, be they banks, but also the companies they work with and their customers. For banks, the European Central Bank in particular is recommending that they integrate EAG data into their credit-granting process. This is where we provide a tool that enables customers to collect the data the bank needs.

Wursteisen: I'd like to thank Spuerkeess for setting up its Transition Enabler project, because it's the link between sustainable reporting and financial reporting. If a company goes to the Spuerkeess and says "I'd like to buy 50 new tractors", show me your financial report. What does it cost? 6 million euros? How long do you think it will take to pay it back? Leasing over 5 years? What's going to happen in 5 years? These are worries that are on everyone's mind these days. So yes, we have a tense geopolitical situation, but I'll take a simple little saying that "on every battlefield, there is grass that grows back". Today, the battlefield is not yet in Europe, but it is at its borders, and the basic problem is to know whether the grass will grow back? I hope so. But it's up to the banks and the economy to do everything they can to ensure that it does.

Loesch: Obligation or not, that doesn't call into question the fact that sustainability remains an important issue for companies. I think it should be seen as a performance lever for companies. On the one hand, you have the financial side, on the other the non-financial side, but the non-financial side also has an impact on the financial side. We need to see it as a whole, a whole that companies need to manage well. The same goes for social issues, because we sometimes forget that if we invest in training measures, in measures to promote well-being at work, in measures to help reconcile professional and private life, this also has an impact, an impact on employees who are more motivated, more committed, and this also has repercussions on the company's performance. So rather than just seeing it as a brake on the company's development, I think we really need to see it as a driving force that will enable us to become more efficient and more resilient in the future.

Wursteisen: You've just touched on a term that's particularly close to my heart, and that's training. If a company, whether it's a transport company or a cabinetmaker, wants to provide a quality product or service, in complete safety, it has a duty to train its employees. And not just face to face in the open space, but throughout its value chain, because it relies on its value chain to satisfy its end customer. This is a very pertinent example, because in August 2023, Wallenborn set up what we call Wallenborn Academy, a training platform. Why was it set up? Because at the time of Covid, it was difficult to provide face-to-face training. And it's true that at the time, we were happy when the lorries were moving and we had managed to put everything in place to enable all our drivers, all our employees, throughout the value chain, to be protected while keeping the economy moving. In the end, we even transported the famous vaccines with a police escort. Today, we have climate change. That's obvious, because there have been tornadoes in Luxembourg. Maybe nobody remembers them any more, except the people who had to repair their houses. There have been floods in France, and 1,500 communes no longer have insurance cover for communal buildings. Los Angeles burned down. By that I mean that the banks that financed the villas at a few million dollars, I don't know how they're going to get their money back. So the impact is major. It's an anticipation.

Reding: A few words to explain the Transition Enabler programme. Our main objective is to raise awareness and support customers, but also to provide them with a tool. What is this tool? To begin with, we had a pilot phase with ten or so customers of all sizes and maturities – large and small companies – to test the tool we are making available, and we produced an EAG questionnaire based on these VSMEs. Through this questionnaire, the aim is to be able to identify or determine its EAG maturity and then improve it over time. This means knowing what data is expected, how mature I am today, what my weaknesses are, where I can improve and how I can improve in the future. In parallel with this questionnaire, we set up a Transition Enabler ecosystem comprising around ten key players in the field of sustainability in Luxembourg. The idea of this ecosystem is to be able to guide the customer to become a good player in this ecosystem. That's why it was important for us not just to raise awareness among our customers, but also among our advisers.

Bryan: Let's say I'm an SME with 40 employees and I want to move forward in terms of sustainability. How do I go about it? Contact my bank? The House of Sustainability? What should I do?

Reding: I think it depends on the customer or their point of entry. If they're now meeting with their advisor about a loan, the advisor will certainly discuss the subject with them and already offer them the questionnaire to determine their maturity and then, depending on the results, guide them towards the right player. But I know that a lot of customers also go straight to the House of Sustainability or the Chambre des Métiers.

Loesch: Yes, it also depends on the company's maturity on the subject. Perhaps if a company has already been involved in these issues for some time, it has its points of contact with us. But sometimes the first contact is with the bank, which helps to guide the company along this path. This is very important. The bank's coordination of the Transition Enabler with the various players in the ecosystem – because there are a huge number of different players and aid schemes or initiatives to support companies in this process – is very good. And there are many different needs. They evolve over time. We set up training courses to help companies acquire all the necessary skills, because these are often fairly new issues. We also set up funding programmes for the Ministry of the Economy, which enable projects to be set up to reduce the impact. Reporting is a starting point. We need to see it as a tool for steering over time and seeing how we can improve.

Wursteisen: When I left university, sustainable development… We didn't know anything about it. The first reports came out in 2004, with the first experts saying that if you invested 1 euro today, you would save 5 euros in sustainable development over the next 10 years. The impetus given by the European Commission and this famous CSRD, forgive the expression, but it was like a little kick up the backside. As a result, companies inevitably said to themselves: "Oops, we're going to have to do something." The sustainability report, once again, is not just about the environment. It's about taking into account that you have a value chain, that you have internal employees who are young and who no longer have the same mentality as my father, who was happy and proud to have 40 years of service, who was happy because he worked outside more and who had coal in the cellar to heat his family. Not anymore. Now, you have to keep an eye open and know how to be human.

Reding: Some of our customers and advisers say they don't know where to start. They don't know how to go about it. As we announced at the launch of the programme, we're also going to be organising sector-specific workshops with our customers, where we really take three hours to accompany ten or so of our customers and tell them what data we need from them, how to collect it and what the opportunities are. Then we'll put them in touch with the players involved, and tell them what financing solutions are appropriate for them, so that they can carry out sustainable projects and make the energy transition. Our role as a bank is also to finance the transition and offer the best conditions to those who are motivated and committed to doing so. For the time being, we are using the European Investment Bank's Green Checker and we are offering a reduction in the application fee for those with genuinely green projects, such as wind turbines and photovoltaics. The idea is really to move in this direction. To motivate those who are committed and also to make them visible on our website, to showcase them.

Bryan: This means that young companies, those starting from scratch, are given a set of guidelines to help them move in the right direction. Michel, I have the impression that you've already gone quite far… In concrete terms, what did the programme offer you that was new?

Michel: The main thing is to explain it properly to your boss. When you tell him that with the CSRD, you're going to have to do a report, he's going to ask you how much it's going to cost. In money and time. So the big job is to tell your boss: "Yes, it's going to cost a lot, but customers want it, the value chain needs it and we're investing in sustainability." Because Mr Wallenborn has children – and it may be his children who take over the company in the future. So his company has to be sustainable. Spuerkeess enabled me, within the company, to really move in this direction and say: "You see, it's not just about marketing to the customer. It's not just saying, 'Hey, I've put a hive of bees on the roof, we're making honey and every employee gets a jar of honey at the end of the summer'." That's not what sustainability is all about. Sustainability is work, a close collaboration between the financier and the rest of the company.

Bryan: What people forget is where the term "sustainable" comes from. It's a period of time, it's risk management. It's about being flexible and it's about resilience. People think that sustainability is about wind turbines and training. But it's not… It's about ensuring the longevity of the business over time.

Wursteisen: That's exactly right. At every level. Social, strategy, quality, protection, safety. At every level.

Reding: And it's this risk management in particular, or the inclusion of physical and transitional risk in the assessment of loans, that the European Central Bank is asking us banks to do.

Wursteisen: If I'm not mistaken, when you sign a loan it's always written that you're also committed to repaying it.

Bryan: It's in the definition of the term, I think… (laughs)

Wursteisen: That's right. So you might as well be solid for the long term to be able to pay it back.