Luxembourg, school case for sustainable alternative funds

Sustainable finance in Europe has come a long way since 2020, moving from a period of regulatory uncertainty to one of greater maturity and clarity. Despite recent regulatory recalibrations, the Old Continent is at the forefront of this change, led by pioneering regulations and strengthened climate commitments. As the second largest investment fund industry in the world, Luxembourg also stands out as a key pole in the sustainable finance landscape. A pole that also touches the world of funds that invest in unlisted private markets, i.e. alternative funds, which have one of the world's leading marketplaces in Luxembourg.

Indeed, Luxembourg is the leading location for European sustainable funds investing in private markets, with 77 per cent of the total sustainable alternative funds investing in Europe. Since 2020, these funds have recorded a compound annual growth of 45.6 per cent in terms of assets.

These are some of the main findings of the study 'Sustainable Finance in Europe and Luxembourg 2025: Navigating the Reallocation', carried out by Lsfi (Luxembourg Initiative for Sustainable Finance) and Alfi (Association of the Mutual Fund Industry in Luxembourg) in collaboration with PwC Luxembourg. The report, the first of its kind, using Morningstar data and proprietary analysis of sustainable funds, highlights how sustainable finance is gradually becoming more embedded in traditional and private segments of the industry's assets, in an increasingly complex political and regulatory environment.

By the end of 2025, traditional sustainable mutual funds worldwide reached EUR 3.1 trillion in terms of assets, accounting for 6 per cent of the total assets of all funds. Assets grew steadily from EUR 1.7 trillion in 2020 to an annual growth rate of 12.5 per cent. In Europe, traditional sustainable mutual funds had assets of EUR 2.6 trillion out of a total of EUR 14 trillion (excluding money market funds), accounting for 18.8% of the total in terms of assets compared to 1.1% in North America.

At the end of 2025, the total assets under management of both traditional and alternative sustainable funds in Luxembourg amounted to EUR 1,633 billion. At the end of 2025, traditional sustainable mutual funds domiciled in Luxembourg held EUR 815.4 billion in assets, compared to EUR 3,495 billion for traditional mutual funds (excluding money market funds). Assets recorded a compound annual growth rate of 9.1% between 2020 and 2025, with the total number of sustainable mutual funds amounting to 2,327 products. Luxembourg remains the leading location for European sustainable mutual funds in terms of assets, accounting for 31% of the total number of traditional sustainable mutual funds in Europe. As far as the EU Regulation on the Disclosure of Sustainable Finance is concerned, in Luxembourg, sustainable mutual funds under Articles 8 and 9 accounted for 71.5% of total mutual funds domiciled in the country in terms of assets at the end of 2025.