ESM as a responsible investor
The ESM has made environmental, social and governance (ESG) considerations an important aspect of its investments. While creditworthiness, liquidity, and return remain critical investment objectives to ensure the ESM can fully implement its mandate, ESG criteria are playing an increasing role. As such, the ESM is focusing on implementing an issuer-based ESG scoring approach for its paid-in capital investments.
The Principles for Responsible Investment (PRI)
Since February 2020, the ESM is a signatory of the United Nations supported Principles for Responsible Investment (PRI). The PRI is recognised as the leading global network for investors committed to integrating ESG considerations into their investment practices and ownership policies. As such, the ESM has committed to regularly report on its responsible investment activities and to apply responsible investment principles to the management of its assets, in particular with regard to its €80.5 billion paid-in capital.
ESM’s integration of ESG criteria into investment practices
The ESM invests in Green and “Sustainability” bonds since 2014. With these investments, the ESM contributes to the initiatives and projects that these bonds finance. The ESM holds €4.5 billion of use-of-proceeds bond holdings as of 31 December 2022. Of this, €4.3 billion of bond holdings were compliant with the International Capital Market Association (ICMA) Principles, split equally between social, green and sustainability bonds, and €0.2 billion were dedicated to pandemic bonds, whose proceeds financed part of the response to the Covid-19 crisis.
Going forward, the ESM’s responsible investing practices intend to go beyond investing in use-of-proceeds bonds: the ESM intends to further refine its approach and apply responsible principles to all its assets, mostly issued by entities contributing to the financing of public goods (Governments, Government-related entities and Supranationals).
Engagement and support of ESG initiatives
The ESM is also actively contributing to the further development of sustainable finance policies more broadly. The ESM is participating, as an observer, in the European Commission's Platform on Sustainable Finance, which assists the Commission in further developing the EU taxonomy. The ESM is also a member of the ICMA Social Bond Working Group.
The ESM is also committed to preserving the environment, as a sustainable user of resources in its day-to-day operations. To this end, the ESM has established several initiatives. For example:
The ESM has obtained the SuperDrecksKescht® Certification of the Luxembourg Government on the sound treatment of available raw material and energy sources and the recycling of waste.
The ESM is committed to green mobility, for example by providing electric car charging stations within its facilities or encouraging staff to participate in local initiatives promoting bike commutes to work.
The ESM is committed to finding sustainable solutions to disposable plastics. Therefore, the ESM signed up to the ‘Zero-Single Use Plastic Manifesto,’ an initiative by Inspiring More Sustainability (IMS) – Luxembourg’s leading sustainability network. By signing up to this manifesto, the ESM commits to eliminating single-use plastics throughout the institution.
The ESM Carbon Footprint
As an important step towards integrating ESG best practices in its operations, the ESM started in 2019 to examine and report the carbon footprint arising from its internal operations. The identification, measurement and reporting of greenhouse gas emissions are key for designing and implementing appropriate reduction measures. In order to demonstrate its commitment to transparency and to enhancing its environmental performance over time, the ESM publishes its Carbon Footprint Report.