Sustainable Finance is no longer just a trend. There has been a drastic increase in sustainable finance products over the last years. The labelling of financial and insurance products therefore plays a prominent and crucial role in facilitating strategic investment decisions and helping tackling issues such as greenwashing.
Sustainable Finance is no longer just a trend.
Traditionally, institutional investors such as pension funds but now more and more retail investors and especially the younger generation are demanding that all financial products they buy are sustainable finance products.
Luxembourg, as a leading financial centre, and LuxFlag, have been fairly early actors in the sustainable finance journey, which shows strong commitment from both the government and the financial sector.
For asset managers, a LuxFlag label is a credential providing a possibility to showcase their sustainability or impact strategies. For investors or asset owners, it is a signal to differentiate between those who merely claim and those who truly ‘walk the talk’.
Responsibility, transparency, sustainability, and independence – founded around these core values in 2006, the Luxembourg Finance Labelling Agency (LuxFlag) is an independent and international non-profit association supporting the financing of sustainable development by providing clarity for investors through the award of labels. Obtaining a label enables transparency and at the same time fosters confidence by reassuring investors that those labelled investment or insurance products invest in the responsible investment sector themselves.
As a result of developments in the sustainable finance’s regulatory environment, LuxFlag has been evolving to meet the need for more transparency in different niches of the financial sector not just by widening the range of labels offered but also by reviewing the eligibility criteria in line with the regulatory changes. After the Sustainable Finance Disclosure Regulation (“SFDR”) was put into force, LuxFLAG has introduced a requirement of compliance to article 8 and/or article 9 of the SFDR as part of its eligibility criteria for all its labels.
At present, LuxFlag offers six different labels which fall under two main categories: impact and sustainable transition labels. Each of those labels has its own criteria and some similarities as five are dedicated to funds.
At present, LuxFlag offers six different labels which fall under two main categories: impact and sustainable transition labels.
With its foundation in 2006, LuxFlag launched first the Microfinance Label, dedicated to Microfinance Investment Vehicles (“MIVs”). In 2011, LuxFLAG launched the Environment Label and after three years, was a pioneer in introducing the first European ESG Label intended for funds incorporating ESG criteria. From then onwards, three other labels have been launched: Climate Finance, Green Bond and LuxFLAG Sustainable Insurance Product (“LSIP”) Labels.
Another advantage of the LuxFlag labels is that they have a cross-border international outreach. This means that LuxFlag does not only grant labels to funds and insurance products domiciled in Luxembourg but to such products which are also distributed in more than 70 jurisdictions.