EU’s strictest sustainable investment product label hardens criteria
The Towards Sustainability label, identified by financial institutions as having the strictest labelling criteria in Europe, has been granted to over 580 investment products managing €390bn from 85 financial institutions since its inception in November 2019.
Belgium’s stamp for sustainable investment products is awarded by an independent entity, the Central Labelling Agency. The norm set for the label is being reviewed every two years. Thus for its first revision, due to come into effect in January 2022, the Towards Sustainability label will evolve to align with the European regulation.
The EU has implemented the Sustainable Financial Disclosure Regulation last March, introducing sustainable shades in the categorisation of investment funds, and recently unveiled its first green taxonomy, designing which businesses are green and which are not. In addition, the label's review expects investment products to ensure deeper integration of sustainability and ESG due diligence in the investment process by requiring multiple different strategies to be in place.
“The restrictive criteria regarding harmful sectors (e.g. weapons, tobacco, coal) have been strengthened. Regarding the fossil fuels sector, a balance is sought between supporting transition and avoiding companies that do not move fast enough. With that in mind, the criteria for this sector became stricter while leaving room for companies that can show in a credible way they are actively transitioning. For this, the Quality Standard does not just look at current operations (indicated by turnover) but also values investments in new sustainable activities (indicated by capital expenditures). Lastly, more detailed expectations are formulated for States when investing in sovereign bonds,” explained the CLA in a statement published on the website of the Belgian label.
The Towards Sustainability website will also undergo a transformation by January 2022 as it will provide more specific information on each labelled product. That ‘Sustainability ID’ includes exposure to fossil fuel sector, carbon footprint, Taxonomy-alignment. “This information enables the investor to determine whether a particular product meets his or her personal expectations about sustainability.”
Lastly, product managers are required to publish detailed policies on a wide range of key sustainability topics on their own websites (e.g. on the energy sector, biodiversity, diversity, taxation, oppressive regimes etc).