09 Mar 2021
09 Mar 2021
Not unlike the labelling of food products with ‘organic’ labels, financial investment products with sustainability objectives are now increasingly coming with ESG labels.
Lyxor ETF’s Antonio Celeste, ESG Product Specialist, explains how these ‘green’ and ‘ESG’ labels can help investors navigate the crowded sustainable investments market with confidence.
In recent years, there has been a strong proliferation of assets in the ESG market, which reflects growing investor sensitivity to ESG (Environment, Social and Governance).
Some European countries have created labels that provide clearer sustainability information for the benefit of investors who are keen to include sustainability factors in their portfolios.
These labels are a powerful tool for both asset managers and investors. Asset managers use them to reinforce their ESG credentials, while investors, who are often overwhelmed by the number of offers they have to screen, have more straightforward options.
Across France, Luxembourg, Belgium, Germany, Austria and Scandinavia, there are two main types of labels: “ESG” and “Green” labels, which focus on climate-related criteria.
The biggest European ESG label in terms of assets under management (at EUR 349 billion) is France’s “Label ISR”, which was created by the French Ministry for the Economy and Finance in 2016.
France also has the “Green” label – Greenfin (with EUR 14 billion AUM) – which requires funds to have a given percentage of assets directly linked to a set taxonomy of sustainable
activities, while specifically excluding fossil fuels and nuclear power. Greenfin-labelled funds must also have an inbuilt mechanism for avoiding ESG controversies, and must publish reporting and indicators to measure the environmental benefits of the invested assets.
What is the difference between the various European labels?
The French “Label ISR” is different from other European ESG labels. It is based on the ESG score improvement or the exclusion of ESG laggards, and requires that a fund performs better than its reference index on two ESG indicators (i.e. gender balance, carbon emissions, board independence etc…). However, product-related or controversy-related exclusions are not mandatory.
Labels in Germany, Austria and the Nordics do apply exclusions, for example for non-conventional fossil fuels, tobacco, weapons, and other criteria. These labels have a sliding-scale scoring system, showing the degree to which funds apply ESG criteria.
How are these labels evolving to meet growing investor expectations?
Asset managers are pushing for more harmonisation of the different national labels, given that the sustainability expectations of investors tend to be universal.
For example, 10 years ago sector exclusion in ESG funds was uncommon in France, while we now see more and more French asset managers (who tend to apply stricter criteria than demanded by labels) excluding tobacco, alcohol, and controversial fossil fuel-related activities such as coal, shale gas, tar sands and arctic drilling.
Labelled funds have grown significantly in AUM in recent years with the launch of new ESG funds, and will continue to do so. In 2020, the AUM of the French “Label ISR” grew by 153%, and we see similar levels of growth with the Belgian “Towards Sustainability” Label (+ 104%) and the German FNG Siegel Label (+97%).
Lyxor’s labelling efforts
We’re happy to report that two more ETFs in our ESG range recently received the official SRI Label:
This adds to our growing list of ESG credentials, including the SRI Label for our MSCI Europe ESG Leaders (DR) UCITS ETF and our MSCI EMU ESG Trend Leaders (DR) UCITS ETF, and the Greenfin Label for our flagship Green Bond (DR) UCITS ETF.
Watch this space as we continue with our ESG fund labelling programme throughout 2021 and beyond!
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