What Sustainable Investments mean
Sustainable Investing can be understood as the responsible engagement in an investment process that supports a sustainable development. There is however no universal definition of sustainable or responsible investing. The United Nations-supported Principles for Responsible Investment (PRI) Initiative defines Responsible investment as “an approach to investment that explicitly acknowledges the relevance to the investor of environmental, social and governance factors, and of the long-term health and stability of the market as a whole. It recognises that the generation of long-term sustainable returns is dependent on stable, well-functioning and well governed social, environmental and economic systems.”
Find further information about Sustainable Finance in Luxembourg here.
Investment funds can be categorized around the three ESG (Environment, Social Governance) pillars. The ESG cross-sectoral category englobes general ESG funds that incorporate ESG factors in their investment decision using for example ESG integration or Engagement and Active Ownership as investment strategies. The Environment category includes e.g. Climate change and renewable energy funds, forestry or water funds that have a specific focus on Environment. The Social Category includes Microfinance funds, and general social impact funds. LuxFLAG’s fund labels cover the ESG (cross-sectoral) and ESG (environment) category in general and in specific climate change funds, as well as the microfinance funds in the ESG (social) category.
The European responsible investing fund market has almost doubled in size since 2010, reaching EUR 476 billion of Assets under Management (AuM) managed by 2,413 funds at the end of 2016 as the KPMG Luxembourg/Broadridge statistics on the European responsible investing fund market commissioned by ALFI and LuxFLAG reveal. Read more
Further information about Responsible Investing can be found in the European Responsible Investing Fund Survey 2015 here.
What is the LuxFLAG mission statement?
LuxFLAG supports the financing of sustainable development by providing clarity for investors through awarding Labels to sustainable investment vehicles which meet specific published criteria.
What is the structure of the LuxFLAG Agency?
The LuxFLAG agency is an independent, non-profit association created in July 2006 by seven partners who are the founding members. The agency is managed by a Board of Directors who represent the founding members. The analysis of applications by funds seeking a LuxFLAG Label is delegated by the Board to an Eligibility Committee, composed of Board Members and external microfinance experts. This panel makes recommendations to the Board which takes the final decision.
How did the idea of creating LuxFLAG come about?
In October 2005, as part of the United Nations’ Year of Microcredit, Luxembourg hosted a Round Table on Microfinance at which a number of studies were presented and debated and some conclusions were reached as to how Luxembourg could support microfinance and establish itself as a key player in the development of microfinance within the traditional capital markets.
The first step proposed was the establishment of a label which would permit investors to be sure that the investment funds to which they commit their money are investing substantially in microfinance.
As a result the Luxembourg Finance Labelling Agency, LuxFLAG, was formed as an independent organisation in July 2006. It is anticipated that the activity of the agency will raise the profile of Luxembourg as a potential domicile for MIV.
The agency is just one initiative in a general movement within the Luxembourg financial centre to support microfinance in all its manifestations, including micro-insurance, money remittances and savings accounts. Luxembourg currently hosts the secretariat of the European Microfinance Platform (e-MFP) and members of the local forum, the Luxembourg Round Table on Microfinance, have organised a range of conferences and seminars in recent years.
Does the LuxFLAG Label represent a recommendation to invest or an indication of performance?
The LuxFLAG Label is not a recommendation to invest, nor does it represent a guarantee of performance.
Is the LuxFLAG Label only awarded to funds domiciled in Luxembourg?
No - the Label will be granted to investment vehicles irrespective to their country of domicile , but there is a requirement that the Applicant should be subject to supervision in the EU member states or equivalent to that available in the EU member states.
Is the Label only granted to investment funds?
The Label is currently available to investment funds (Microfinance, Environment, ESG, Climate Finance) and Green Bonds subject to a level of national supervision equivalent to that which exists in EU countries. The Label may be extended to other types of securities (such as securitisations or other bonds) at a future date.
Is LuxFLAG independent ?
LuxFLAG is independent and desires to remain so.
- It is the intention of the Board not to open up full voting membership to the commercial investment banking community, so as to avoid conflicts of interest;
- Internal rules of the association require members of the Board, and members of the Eligibility Committee (which deliberates on the merits of applicant funds), to abstain from debating or voting on the application from a fund for which they have a potential conflict of interest. LuxFLAG requires its directors and members of its Eligibility Committee to apply best practice as regards confidentiality of information submitted by applicants for the Label.
Why is the agency called LUXFLAG?
The name “LuxFLAG” derives from the full name of the agency (Luxembourg Finance Labelling Agency).
Do other locations support or recognise LuxFLAG as an accredited labelling agency?
LuxFLAG has gained international recognition for its Label through its thorough process and strict eligibility criteria.
Where can I obtain a detailed list of the criteria?
For how long is the Label granted?
The Label is granted for a period of one year and can be renewed after expiry. To this end LuxFLAG will issue an invitation to submit an updated application document before the expiry of its Label.
Does the agency take any steps to ensure that a labelled fund continues to comply with its criteria in between review dates?
If the Label is refused, are justifications provided?
The Board of Directors is not obliged to provide justification. However, in practice the application is a two-way dialogue.
Can the Label be withdrawn?
The LuxFLAG Label can be withdrawn at the decision of the Board of Directors.
Are the criteria fixed or will they be revised regularly?
It is the intention of the agency to grant the Label based on a set of fixed and published criteria. Nevertheless, the responsible investing industry is in a state of rapid evolution. It may be necessary to revise the criteria from time to time in order to reflect the true nature of the market.
What is the main requirement expected from non Luxembourg funds to be granted the Label?
There is no difference in the criteria demanded of a Luxembourg fund and a fund domiciled in any other jurisdiction. The investment vehicle must be subject to a level of supervision equivalent to that available in EU member states. A non-regulated investment vehicle domiciled in Luxembourg would therefore not qualify for the Label.
ALFI- The Association of the Luxembourg Fund Industry
BoD – The Board of Directors (BoD)
CGAP - CGAP (the Consultative Group to Assist the Poor) is an international consortium of public and private development agencies that sets standards in the microfinance field.
Charter Member – Founding members and main Shareholders of LuxFLAG
Corporate Governance - The system of rules, practices and processes by which a company is directed and controlled.
Double Bottom Line - Approch of monitoring both financial and social results.
EIV - Environment Investment Vehicle. Investment funds investing in Environmental themes such as water, renewable energy, climate, etc.
Eligibility Committee – LuxFLAG body that reviews the application files
Eligibility Criteria - The specific published criteria as defined by LuxFLAG that an Applicant Investment Fund must comply with in order to obtain a LuxFLAG label.
ESG – ESG is an abbreviation of "environmental, social and governance" factors
FCP – The Fonds Commun de Placement
Impact investing - Impact investments are investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return. (Global Impact Investing Network)
LFF - Luxembourg For Finance
LuxFLAG - Luxembourg Finance Labelling Agency
MFI - A Microfinance Institution
Microfinance - Microfinance is defined as the supply of loans, savings, insurance, transfer services and other financial products to poor and low-income clients excluded from the traditional banking system. Typically, microfinance includes providing financial services to micro-entrepreneurs to set up a business.
MIV - A Microfinance Investment Vehicle
SICAV – Société d’Investissement à Capital Variable
SICAF – Société d’Investissement à Capital Fixe
SICAR – Société d’Investissement en Capital à Risque
SIF – A Specialised Investment Fund
UCITS – UCITS stands for Undertakings for Collective Investment in Transferable Securities.