Let your investment funds go green
In order to give customers assurance that the fund they are investing in really is “green”, the Luxembourg labelling agency LuxFLAG, today at its General Meeting launched its Environment Label, which is granted to investment funds that apply vigorous environmental screening to the companies whose securities they invest in. LuxFLAG was created in 2006 for the purpose of delivering recognisable labels to qualifying domestic and international investment funds.
The motivation for creating the Environment Label resulted from rising demand for funds that invest in companies that limit or prevent damage to the environment. It proved even harder to tie down a definition for “environmental investment funds”. Work on the structure of the label began in 2009. It was 21 months later, that the “LuxFLAG Environment Label” was officially launched after the approval at its Annual General Meeting. According to Daniel Dax, General Director of LuxFLAG, the label creates trust and confidence. “I think confidence is key. The label also helps to raise the visibility of the investment funds.”
Defining what is environmentally responsible is not easy. A complex process guarantees that the funds are really worth the label. Dax explains the procedure: “A qualifying vehicle has to be supervised and regulated and must comply with a series of governance criteria. For instance, assets must be held separately at a custodian bank. The fund completes a detailed questionnaire relating to its investment policy and process. Compliance with this document is then audited by the fund’s own audit firm, which checks that the methodology has been complied with and does sample testing. The auditor’s analysis is given to the LuxFLAG eligibility committee, which is composed of board members and external experts. The eligibility committee makes a recommendation to the LuxFLAG board, which decides whether the label will be granted. The Environment Label will be valid for one year; investment funds have to justify on an annual basis that they still meet the criteria.
“Where MIVs are concerned, Luxembourg is at the forefront of the industry in granting a label”, continues Dax. “In the socially responsible/sustainable sphere, there are initiatives in other jurisdictions, however their target market tends to be different from ours. We aim to work with funds that are distributed on an international scale, rather than targeting funds that will be distributed on a national market. Investment funds do not have to be domiciled in Luxembourg to obtain a LuxFLAG label”, Dax explains.
Luxembourg offers a legal framework for the creation of microfinance investment funds and as a result hosts the majority of regulated MIV worldwide. Local players hope that its reputation and experience in this area will encourage sustainable growth in the environmental fund sector. EK