Eco-labels are distinct and separate from the recently introduced disclosures under the Sustainable Finance Disclosure Regulation (SFDR) and are awarded to funds as a validation of their ESG (Environmental, Social, Governance) credentials.
National Eco-labels are designed to allow retail and institutional investors to compare the ESG credentials of funds, knowing that the label’s criteria are more likely to reflect the credentials that are important to them than an EU-wide benchmark.
Due to the differences in the specific demands and expectations of investors in each jurisdiction, Eco-Labels are awarded on a jurisdictional basis and are measured against criteria that reflect most investors’ ESG requirements in the target market.
Eco-labels can be awarded to a wide variety of products. For example, the Nordic Swan Ecolabel makes it easier for consumers and professional buyers to choose the most environmentally conscious goods and services, including furniture, cleaning products and fuel; however, for the purpose of this article, we will concentrate on the provision of Eco-labels to investment products.
The criteria of each label differ, not just in how they reflect the demands of the investors, but also the approach to how the label is awarded.
For example, the FNG Siegel label for Germany does not allow any investments in Nuclear energy, whereas the French label ISR will allow such investments to appear in the fund’s portfolio. In addition to this, certain labels have minimum criteria that must be met in order for the label to be awarded, with additional gradings being awarded depending on how embedded the ESG criteria are in the fund’s management and operation.
Other labels allow Fund Managers to concentrate on certain aspects of their fund’s ESG criteria, measuring it against benchmarks to demonstrate how well it out-performs its peers on those criteria.
Labels are awarded on an annual basis, with some carrying submission deadlines to ensure the label can be awarded that year. Although the formal awarding of the label happens at one point in the year, Managers must be confident that they can demonstrate their continued adherence to the label’s criteria throughout the year. Once awarded, labels can be used in marketing material that supports the promotion of funds. This includes fund factsheets, presentations and general policies and statements that demonstrate the ESG credentials of the fund, and of the Manager.
It is difficult to determine what is driving the popularity of certain labels above others at the moment. It may be the marketing efforts of Managers targeting certain jurisdictions, pressure from legislation or the growing expectations of the investors, but the most sought-after and awarded labels are currently the FNG Siegel label in Germany, Label ISR in France and the Umweltzeichen label in Austria. Labels such as the Lux Flag, the Nordic Swan and the Towards Sustainability in Belgium are also growing in popularity and demand.
Eco-labels are constantly under development, just as the SFDR requirements and EU’s Taxonomy continue to evolve. Groups and associations administering and issuing these labels are changing their criteria to reflect the changing demands of investors, and are therefore reflective of investor demands in any particular jurisdiction. Independent Eco-Labels are likely to continue to play an important role within the ESG landscape for some time to come.
FE fundinfo provide a service that guides Managers through the process of applying for an Eco-label. We will carry out an initial screening of your fund’s portfolio against the criteria of the chosen label. Depending on the result of this screening FE fundinfo will then work with you to prepare and submit the application or provide advice and guidance on how the portfolio could be amended to meet the necessary criteria.
Fund Managers can also publish their fund marketing factsheets, including ESG reports on FE fundinfo’s leading fund information platform fundinfo.com, making them available to investors in the UK, Europe, Hong Kong and Singapore.