ESG is becoming mainstream at an incredible pace. This is witnessed by the 166% growth in awarded ESG-labels for investment products by not-for-profit organisation LuxFlag over the past twelve months, says its general manager Sachin Vankalas in an interview with Investment Officer.
‘The growth in the number of applications for a label is clear evidence of the growing demand for sustainable financing and investments’, says Vankalas. LuxFlag believes the coronavirus outbreak stimulates awareness among investors that it is important to put pressure on (listed) companies to pay more attention to ESG factors such as employee rights, supply chain management and preparedness for extreme situations such as pandemics.
Green Deal
Vankalas believes the Green Deal announced by the European Commission last year is also helping to stimulate companies and consumers to invest more in sustainable financing. The European Commission plans to spend more than €1,000 billion for Europe to become a global leader in sustainability.
‘The European Green Deal is a very good initiative. It raises awareness in Europe that there is something wrong with the climate and that we need to be careful with investment products and investment vehicles that employ greenwashing tactics,’ he notes. ‘Through initiatives such as the EU Green Deal, but also the United Nations SDGs, we believe that the potential for sustainable development is great.’
LuxFlag, founded in Luxembourg in 2006 to offer more transparency in microfinance products, has broadened its scope over the years and also became active across borders. Meanwhile, Vankalas says, 196 investment products have been labelled by the non-profit organisation. Luxflag-labelled products are sold by 88 asset managers in 75 countries and 7 jurisdictions.
The Netherlands
One of the pioneers in ESG-labelling is the Netherlands, says Vankalas. ‘For 10 years we have been providing labels for Dutch asset managers, including Triodos, NN IP, Actiam, InsingerGilissen, Robeco and ABN Amro.’
The labels are issued after a thorough assessment by independent experts, for a maximum of twelve months. Anyone who receives and uses the LuxFlag label for their product pays €3000 per year. The vetting process takes about three months.
Although there are examples of European countries where the industry has chosen its own label, such as Belgium, Vankalas feels that a label provided by a non-profit organisation is preferred by the market.
In addition to ESG labels, LuxFlag also provides labels for products from microfinance, green bonds, environment and climate finance. The total supply of labels has increased by 88% over the past 12 months.