GPs offered ESG badge of honor

A Luxembourg-based non-profit advocacy group wants to award fund advisors an environmental, social and governance (ESG) badge of honor for meeting its standards on responsible investment.

LuxFlag, a non-profit labelling agency, wants its “LuxFLAG ESG Label” to be a sign of certification that a fund advisor meets certain criteria when it comes to ESG matters.

LP interest in ESG has been rising in recent years, especially in Europe where some institutional investors require a certain level of ESG commitment before backing a manager. In all 69 percent of fund managers say they’ve observed increasing concern about ESG issues from their investors during the past 3 to 5 years, according to a survey from Actis and consultancy Malk Sustainability Partners.

Funds that meet the ESG criteria may use the LuxFLAG Label logo in their marketing and promotional activity. The labelled funds are systematically mentioned in LuxFLAG newsletters as well as a forum on its website where fund managers can talk about their investment vehicles.

Fund advisors are already lining up to use the label, with OFI Asset Management, Nordea and Sparinvest the first three firms to apply for the stamp.

“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 in a statement LuxFLAG chairman Thomas Seale.

To meet LuxFLAG’s requirements a fund manager must be compliant with the Alternative Investment Fund Managers Directive (AIFMD). A non-European fund may qualify provided it is subject to an equivalent regulatory framework.

The applicant fund must describe its ESG strategy and demonstrate how it integrates said ESG strategy throughout the investment process. The fund must also screen its portfolio to LuxFLAG’s internally approved ESG strategies and standards. LuxFLAG requires the fund’s auditor to sign off on some of the measures.

To apply for a label the fund manager must complete a detailed questionnaire and provide the following information: the fund’s prospectus, the latest financial statements and the marketing documents that describe if and how non-financial performance is managed.