The financial labelling agency Luxflag plans to roll out a new social impact label and will extend the validity period of its labels to regain attractiveness with asset managers, its CEO, , said in an interview.
Since 2021, the total number of financial products with a Luxflag has declined by 28%, with total assets under management down by 31%. Delas in June that the labelling agency faced tightening budgets at financial firms and increased competition from rival labelling agencies. Luxflag has been working on stepping up its product, service and communications lineups to stem the tide and return to growth.
Luxflag, founded in 2006, is the grand duchy’s labelling agency that checks financial firms’ responsible investing claims. It is a public-private partnership backed by organisations that aim to instil investor confidence in responsible investments.
Social impact label
Speaking with Paperjam in October, Delas stated that Luxflag was in the “final stage” of developing a social impact label. “It’s part of our mission to push for more private capital invested towards those kinds of social thematics.”
Social impact funds strive to generate a positive result on a social issue, along with their financial return. Luxflag is developing the social impact label with the newly formed International Social Finance Accelerator, which earlier this year under the auspices of the International Climate Finance Accelerator.
Over the past several weeks, “we have been engaging with market participants” to garner feedback, Delas stated. She aims to submit the framework to Luxflag’s board and gain board approval by the end of the year, and then start accepting applications in 2025.
Extended validity periods
In a big shift, the agency will begin transitioning the validity period of its labels from one year to three years starting in the first quarter of 2025. The move has been “very much welcomed by our current applicants,” Delas said, because it brings more “stability” to their product and marketing plans.
Despite the switch, label standards will maintain the “same quality” level, she stressed. Funds will still be subject to “annual intermediary reviews.” In fact, “we will increase monitoring, in the sense that we will make sure that the fund holding the label is really compliant, still [observing] the criteria and exclusions of that particular label, for the validity period of the label.” These checks are carried out in-house, not outsourced, Delas noted.
In parallel, Luxflag is transitioning to a digital application and reapplication process, starting with the ESG family of labels. The organisation is currently testing IT tools with asset managers, but the project is still very much in progress.
#LSIW24
The interview with Delas was held ahead of Luxflag Sustainable Investment Week 2024, the organisation’s flagship annual conference. This year’s summit focuses “mainly on net zero and climate action,” including the Paris agreement, global alignment and the role of sustainable finance.
“Unfortunately, we already passed the 1.5 degree” target in the Paris climate agreement, which called for the world’s average surface temperature to rise by no more than 1.5C. Global leaders will “probably have to fix a new threshold of 2 or 2.5 degrees,” a situation Delas called “very sad” because now “I don’t think we can speak about climate mitigation, we [have to] speak more about climate adaptation.”
“The positive thing,” Delas commented, is that stakeholders are increasingly “speaking about transition finance and net zero.” All the same, “we need to catch up” with climate goals “quite quickly.”
Luxflag Sustainable Investment Week 2024 takes place at the Centre Culturel Schéiss on Tuesday 22 October and Wednesday 24 October. Information and registration .