"LuxFLAG labels show that Danske Bank's funds meet many criteria including sustainability, which is integrated into all our management processes, company dialogue, voting and investment restrictions", according to a press release from Danske Bank. Communication is terse concerning said processes and applicable restrictions. The Danish bank has chosen to rely on ESG criteria to restore its reputation, which was tainted by the 200-billion-euro money laundering scandal within its Estonian subsidiary, but it is sparing on details concerning the processes implemented.
Careful reading of the 82 LuxFLAG ESG-labelled funds list can raise some questions. While approximately 15 of these funds have a name related to sustainable finance and SRI, others do not seem to conform to sustainable finance standards. For example, the first few figures for Russian funds Lukoil, Gazprom and Norilsk Nickel show involvement in the exploitation of Arctic offshore oil. The latter is even responsible for a large-scale oil spill in the spring of 2020.
Sustainable finance labels generally meet minimum quality standards to provide investors with clear and reliable benchmarks. "If some funds with a European sustainable finance label have too many controversial companies and do not provide any public information on their ESG qualities, this can discredit the entire process", worries Roland Kolsch, Managing Director of the German-language label FNG Siegel. "Labelling must remain a guarantee of quality that is enjoyed by funds that accept the principle of independent verification. This is all the more important since disclosure regulations will require sustainable funds to publish data on their environmental and social performance as early as next year. We need to be able to provide proof to investors", he added.
The rise of LuxFLAG ESG is therefore a new phase in the competition between various European sustainable finance labels. The market is dominated by the French SRI label (493 funds at the end of August 2020) and the Belgian quality standard label Towards Sustainability (418 funds at the end of August 2020). Still, with more than 303 funds certified, LuxFLAG climbs to third place. This quantity race should not lead to premature sustainability certification. In case of dispute, this could jeopardize the future of these quality guarantees now awarded to more than 1,000 funds on the European market.