Luxembourg is positioning itself as a global impact finance hub after announcing it will launch the world’s first drought resilience fund.
The Drought Resilience Investment Facility (DRIF) aims at mobilising around $400 million US to develop sustainable agriculture, improve access to water, and promote nature-based solutions. Luxembourg, which hosts the second largest fund centre in the world (after the U.S.), and the largest in Europe, with more than €5 trillion in assets under management, has committed €2m to the fund, according to the Luxembourg government.
“Through this initiative, we reaffirm Luxembourg’s commitment to mobilising private and public capital to make the world more sustainable and to build a more drought-resilient future,” deputy prime minister and foreign affairs and cooperation minister Xavier Bettel said, adding: “Luxembourg remains determined to dedicate 1% of its GNI to official development assistance, thereby demonstrating its commitment to international solidarity. Through this initiative, we reaffirm our dedication to multilateralism and to working with United Nations organisations to advance innovative ideas and to mobilise Luxembourg’s expertise in the service of sustainable development.”
According to the government, roughly 40% of the world’s land is affected by drought, a phenomenon impacting one in four people and significantly disrupting global economies through agriculture, supply chain, migration, and financial stability. Without action, it is estimated that by 2050 three out of four people will face water shortages.
To respond to this urgent situation, the international community adopted in 1994 the United Nations Convention to Combat Desertification, the only legally binding agreement dedicated to sustainable land management. Luxembourg ratified this Convention in 1996 and now reaffirms its commitment through the creation of the DRIF.
After establishing as a finance hub in the 1980s, the grand duchy was an early mover in ESG and sustainable finance. In 2016 it launched the Luxembourg Green Exchange (LGX): the world’s first and leading platform exclusively dedicated to green, social, and sustainable bonds. The following year, it added Social and Sustainability Bonds and became the first stock exchange globally to require full transparency and post-issuance reporting for securities to be displayed on LGX. Today, LGX includes more than 50% of the listed green bonds worldwide.
Today, it is recognised as a global hub for climate finance, housing funds that channel billions into sustainable projects.
Laetitia Hamon, Head of Operations & Sustainable Finance at the Luxembourg Stock Exchange, told Forbes: “The launch of the Drought Resilience Investment Facility could mark a turning point in climate finance, as it directs large-scale investment towards one of the most urgent yet overlooked climate challenges. By hosting the world’s first fund dedicated to drought resilience, Luxembourg not only reaffirms its leading role in sustainable finance, but also sends a strong signal that adaptation must stand alongside mitigation.”
