Nadine Haas –

Both public and private actors praise the Luxembourg financial centre as a leader in sustainability. Whether this is true or not, there is a fundamental problem with the understanding of sustainability, which, for these actors seems to refer mainly to the environment and climate. When it comes to human rights, however, their commitment is insufficient. Voluntary engagements do not prevent Luxembourg-based financial institutions from being linked to human rights violations.[1]

The Luxembourg financial centre is not only of huge relevance for the national economy, but also an important player at the European and global level. The financial sector accounts for one third of Luxembourg’s GDP and 12% of national employment. More than 125 banks from 27 countries are present in the country. Luxembourg ranks second among financial centres at EU level and 29th in the world. At the end of 2021, there were more than 3,500 investment funds domiciled in Luxembourg, managing net assets of 5.6 trillion €, making Luxembourg the second largest investment fund centre in the world behind the United States. Luxembourg is the EU hub for seven Chinese banks, and 42% of all investment funds investing in China are based in Luxembourg.[2]

The financial sector is part of the global economy and financial decisions must be seen as part of economic value chains. In other words, the decisions made by financial actors have an impact on companies and people around the world, and therefore financial institutions must take responsibility for their actions. The Luxembourg financial centre cannot therefore be considered in isolation from its environment, but we must look at its impact on socio-economic conditions in Luxembourg and internationally, not least for the countries of the Global South.

In recent years, the topic of sustainable finance has gained increasing attention. Sustainable investments have increased globally, with assets under management amounting to 35.3 trillion USD, representing 36% of all professionally managed assets.[3] Luxembourg claims to be the largest market for listed green bonds, representing 21% of the global market share of ESG (Environmental, Social and Governance) fund assets. But what does sustainable mean in this context? In the Luxembourgish public debate, sustainability is limited to climate and environmental aspects and neglects human rights and other social issues. If social aspects are considered at all, they refer to specific areas like philanthropy, inclusive finance, or projects that work towards access to essential services. Even the recently launched image campaign by Luxembourg for Finance, while stating that “the Luxembourg financial centre has been a pioneer in the field of sustainable financing for many years”, completely ignores human rights.[4]

However, financial institutions are just as responsible for protecting human rights as other sectors of the economy. This was established in 2011 with the endorsement of the United Nations Guiding Principles on Business and Human Rights (UNGP),[5] which recognise the responsibility of companies, including those of the financial sector, to protect human rights. The UNGP apply to all companies, including commercial banks and other entities in the financial sector, regardless of size, sector, operational context, ownership, and structure. A company’s responsibility may vary according to whether it causes adverse human rights impacts through its own activities, or whether its products or services are linked to human rights violations through a business relationship. In the case of banks, for example, their own activities, such as providing financial products and services to clients, may contribute to human rights violations.[6] In the case of investors, there is a business relationship, in the sense of the UNGP, between the shareholder and the company in which they invest, manifested through the ownership relationship. The investor holds shares with the aim of making a profit and his ability to generate profits depends directly on the activities of the company in which he holds shares. This also applies to investment funds, which may be minority shareholders.[7]

Amongst the actors of the Luxembourg financial centre, awareness of this responsibility and knowledge of the UNGP are rather low. Very few institutions have adopted a policy commitment or governance document (e.g. a code of conduct) that mentions human rights, and those that do take a voluntary approach. For example, the Luxembourg Bankers’ Associations’ (ABBL) code of conduct states that ABBL members should “consider how to integrate ESG aspects in their policies” and “engage towards sound and responsible business practices (…) including human rights”.[8] Similarly, the business network INDR[9], while recognising “the opportunity that compliance with the UNGP can represent in terms of competitiveness and risk management, in particular reputational risk”,[10] advocates for voluntary commitments when it comes to human rights due diligence. Even the Luxembourg Sustainable Finance Strategy, launched in 2020 by the government, Luxembourg for Finance, and the High Council for Sustainable Development, while mentioning that their understanding of sustainability does include the respect of human rights, does not develop this aspect and avoids a clear commitment. These three institutions are the only ones that even mention human rights in their main policy documents, while other major actors of the financial centre do not even do this. Voluntary commitments, however, have proven to be insufficient to prevent human rights violations, as the following cases show.

One example of how investors can be linked to human rights violations relates to the repression of the Turkic Muslim community by Chinese authorities. In May 2021, the EU suspended the ratification of an investment pact with China because of human rights abuses against Uyghurs in the Chinese province Xinjiang. A Human Rights Watch report[11] shows how the Chinese government has committed crimes against humanity against the Turkic Muslim population. The report estimates that one million people have been arbitrarily detained in prisons and “political education” camps, where they are subjected to torture, political indoctrination, and forced labour. Even outside the detention centres, the repression continues. Movement controls, arbitrary arrests and enforced disappearances merge into a system of mass surveillance. The application WeChat is part of this repressive scheme and has been used for cyber-surveillance of the Turkish Muslim minority in Xinjiang. WeChat, developed by the Chinese company Tencent, has been described as China’s “app for everything” due to its wide range of functions, and is the world’s largest mobile app with over 1 billion active users as of 2018. Tencent has been accused of playing an important role in the implementation of cyber-surveillance and censorship by the Chinese government within China, but also internationally.

This has not prevented investors from investing in Tencent, including investment funds domiciled in Luxembourg. As an example, BPSA FONDS LUX, managed by Gerifonds, and the mutual fund NEF, invest in Tencent. In its 2020 annual report, BPSA FONDS LUX shows a position worth 1,100,290 USD invested in Tencent Holdings Ltd for the BPSA Bonds sub-fund. The NEF fund, according to its report of 30 June 2021, holds assets worth 18,787,147.66 € in Tencent Holdings Ltd.. These two Luxembourg funds are just two examples of many funds that invest in TenCent and whose pursuit of profit takes precedence over respect for human rights.

Another example linking the Luxembourg financial centre to human rights violations and the refusal to meet corporate responsibility for remedy is the Luxembourg-based multinational Aperam, listed on the Luxembourg stock exchange LuxSE. Aperam is a leading producer of stainless and other specialty steels. The Luxembourg State is a 0.563% shareholder in Aperam. Aperam was created in 2011 through the spinoff of ArcelorMittal’s stainless-steel division. Since its creation and the immediate listing on LuxSE, Aperam shares have increased in value by over 500%. At the end of the first quarter of 2021, the company reported a 14% increase in its steel shipments compared to the previous quarter and a net profit of 116 million €.

At the same time, Aperam refuses to accept its corporate responsibility for severe environmental damages and health problems of the local population caused by its activities in Brazil. In fact, between 1974 and 1978, Aperam Bioenergia dumped illegal deposits of aldrin next to the river Serra in the Brazilian state of Minas Gerais. Aldrin is a lethal pesticide banned in over 100 countries, including Brazil. Aldrin was used by the company in its eucalyptus plantation to combat termites and ants. The eucalyptus is processed into charcoal and then used in blast furnaces to produce steel. In addition to its impact on the environment, aldrin can cause a number of health problems. Indeed, residents of the region reported symptoms of intoxication such as headaches, skin irritation, fainting, and convulsions, as well as an increase in cases of cancer.

For over 40 years, the aldrin deposits remained buried and forgotten. In 2019, the Public Prosecutor of Minas Gerais launched an investigation at the request of the affected community. Several months later, the prosecutor’s office filed a public civil action against Aperam, asking the company to pay compensation to implement a rehabilitation plan for the contaminated area. In 2021, a judge ordered Aperam to pay 1.5 million R$ (approximately 235,000 €) in compensation to the state and to inform the community about the soil contamination and the need to consider restricting access to the area.

To date, Aperam rejects this court decision and refuses to pay compensation, maintaining that there has been no damage to the environment or the community, and that reparations are therefore not necessary. Aperam also claims that paying the compensation would lead to losses and delays in the payment of workers’ salaries. While the headquarters in Luxembourg announce record profits, in Brazil, the consequences of the illegal aldrin landfill will continue to be felt by the local population even after the removal of the contaminated deposits.

As a company under Luxembourg law and listed on the LuxSE, Aperam is bound by the binding LuxSE governance rules, the so-called X Principles.[12] According to these, companies must define and disclose their policies on social and environmental responsibility. In addition to this binding principle, it is recommended that companies integrate CSR aspects into their strategy and consider non-financial risks, in particular social and environmental risks. The underlying concept of sustainability is not clearly defined in the governance document, and there is no reference to human rights. LuxSE claims to monitor the application of these governance rules, but this monitoring remains without consequences.

As of today, Luxembourg companies and financial institutions which are linked to human rights violations cannot be held accountable on the basis of existing national legislation. Also, the Luxembourg government and its regulatory institutions have no real oversight of the respect of human rights in the financial decisions and investment policies of private companies of the financial centre. As became clear not least in the context of the OpenLux investigations, Luxembourg is insufficiently equipped to ensure effective control over the financial flows it handles, as its regulatory bodies, like the Commission de Surveillance du Secteur Financier (CSSF), may have an adequate size for the country, but not for the financial centre.

What we need therefore is binding legislation on human rights due diligence that includes the financial sector. And if the financial centre wants to be considered as a leader in sustainability, it is essential that public and private actors broaden their understanding of sustainability to include social and human rights aspects and assume their responsibility to protect human rights.


Footnotes and references:

[1] This article is based on the findings of the ASTM study “Luxembourg’s Financial Centre and its Human Rights Policies” released in February 2022. Link to the report:








[9] Institut National pour le Développement durable et la Responsabilité sociale des entreprises