The Luxembourg Fund Labelling Agency (LuxFLAG) has launched the first European label for funds that follow environment, social and governance (ESG) objectives.

The launch fills a gap in the European investment fund market which has lacked a product-based label for ESG funds.

Pierre Gramegna, Minister of Finance of the Grand Duchy of Luxembourg, said: “The LuxFlag ESG label is a new tool in the broad range of initiatives that encourage fund stakeholders to act responsibly and aim for the achievement of a better and sustainable future. We in Luxembourg strongly support this goal.”

Ucits funds or funds registered under the Alternative Investment Fund Managers (AIFM) directive that are domiciled in Europe or equivalent jurisdictions can apply to receive the ESG label. It will only be granted to funds that meet specific criteria in their ESG objectives.
OFI Asset Management, Nordea and Sparinvest are the first asset management companies to apply.

“The new LuxFLAG Label is appropriate for investment funds which truly incorporate disciplined ESG criteria in their investment process. It will help these funds differentiate themselves from other offerings in the market place and it will help investors make informed decisions through the enhanced transparency and visibility the label provides” said Mr Thomas Seale, chairman of LuxFlag.

The label is granted for one year and can be renewed. It is given by LuxFlag’s board of directors based on an investment fund’s application and a recommendation by the firm’s eligibility committee of specialists.

Gramegna pointed out that the rate of growth in responsible investment during the past decade had outstripped that of most other investment strategies.

A recent survey on RI funds by KPMG found that ESG was the largest of all categories in the RI spectrum. The category also experienced a steady increase in new funds.