Luxembourg ESG-related legislative initiative on climate loans

On the 5 May 2021, draft law 7821 (the Draft Law) on climate loans (aides à des prêts climatiques) was submitted to the Luxembourg Parliament. The Draft Law will repeal the Luxembourg law of 23 December 2016 which entered into force on 1 January 2017 (the 2016 Law) to increase demand for climate loans promoting the sustainable energy renovation of dwellings with a seniority of more than 10 years in the Grand Duchy of Luxembourg.

The Draft Law aims to simplify the current criteria, procedures and terminology set out in the 2016 Law to make it accessible to all citizens and industry professionals, in particular, energy advisers and to ensure that every property owner is eligible for an interest free loan.

This is in line with the other sustainable and ESG-related legislative initiatives in Luxembourg with an aim to increase housing with the technical installations favouring renewable energy. The intention is to not only encourage a responsible energy consumption and the preservation of the environment but also to reduce energy costs more generally and achieving a higher market value of the property. Under the Draft Law, there are some minor modifications to the defined terms of the 2016 Law:

• the definition of "applicant" (demandeur) has been limited to natural persons rather than natural and legal persons due to the lack of demand for aid by legal persons. The Luxembourg Chamber of Commerce has commented on the Draft Law and recommends that legal persons remain within scope.

• the definition of "housing" (logement) is as defined in the  of 5 May 2011 on individual housing assistance (Loi du 5 mai 2011 fixant les mesures d'exécution relatives aux aides individuelles au logement promouvant l'accès à la propriété et prévues par la loi modifiée du 25 février 1979 concernant l'aide au logement.) which requires a property to have its own individual description in the land registry (désignation cadastrale). For instance, if adjoining houses (maisons de rapport) do not have a vertical land registration (cadastre vertical), it will be considered as one property when requesting aid under this Draft Law.

There will be two types of financial aid given under the government scheme:

• an interest subsidy (subvention d'intérêt) will be established: "climate loan interest subsidy" that will be available for all applicants,

• a state guarantee (garantie étatique) granted to applicants that do not hold guarantees considered sufficient by financial institutions.

The climate loan interest subsidy is subject to the below modifications under the Draft Law:

• there is no income requirement, but the applicant must provide proof that he has obtained a decision from the Minister of the Environment (ministre de l'Environnement) granting state aid within the framework of the "PRIMe House";

• the interest subsidy rate is limited to 1.5% and not exceeding the real rate of the loan;

• the loan amount is capped at 100,000 euros for a period of 15 years, with the interest subsidy granted not exceeding 10% of the principal loan amount (i.e. 10,000 euros);

• the housing must be inhabited- primarily and permanently, no later than 3 years after the start of the energy purification works with the aid only being granted for the period of habitation;

• both the applicant and credit institution are required to transmit information to the ministry, thereby derogating from the banking secrecy.

The Draft Law is still in its early stages and the formal vote and entry into force is still uncertain. For more information and to stay up to date on this topic, please reach out to the contacts listed on this article or your usual Simmons & Simmons contact.