The Belgian finance body Febelfin has developed a quality standard for sustainable financial products in consultation with banks, fund managers and civil society, saying that investment funds that meet the standard will obtain a sustainability label.
The Brussels-based body, which represents €260.1bn of savings and €301.2bn in investment funds, while noting the growth in sustainable financial products, says “it is not always easy for investors to decipher the exact meaning of the term ‘sustainable’”.
“Anyone who wants to invest sustainably must undertake complicated verification work to ensure that their money will only end up in companies or activities that correspond to their personal convictions about people, the environment and society.
“For example, a sustainable investor will not like to see his money invested in the arms or tobacco industry, highly polluting activities or companies that violate human or labour rights.”
So the new standard will mean consumers “can rest assured that they are not investing in highly damaging business activities, but in companies with a clear sustainability strategy and transparent policies on issues that are the subject of public debate, such as nuclear energy”.
An independent body will check whether the product meets the non-binding and non-mandatory standard and deserves the label, with particular attention to climate impact of companies in the energy sector. It means that companies that are “still too involved” in the most harmful fossil fuels, such as coal, will be excluded.Febelfin says the context for the initiative is the Task Force on climate-related financial disclosures (TCFD), the work of EU on sustainable finance and directives like those on non-financial reporting, the revised IORP pension directive and the updated Shareholder Rights Directive and France’s Article 173 etc.
“All distributors and managers, domestic and foreign, of socially responsible or sustainable financial products can apply for the label”
Indeed, the standard intends to stay fully aligned with the EU’s sustainable finance taxonomy, metrics and standards and the Belgian financial sector “wants to actively contribute to the debate and the development of an ambitious future EU standard for sustainable financial products”.
The quality standard uses a principles-based approach and there will be a fee to cover the costs of e.g. the management of the central labelling agency, the supervision procedure and the dedicated website.
It will cover mutual funds, life insurance products and structured notes and savings products. The standard applies to products that are marketed as ‘sustainable’, ‘socially responsible, ‘ethical, ‘SRI’ or equivalent.
“All distributors and managers, domestic and foreign, of socially responsible or sustainable financial products can apply for the label,” Febelfin says.
Custom-made portfolios for individual private or institutional clients are not strictly in scope, although it’s hoped the quality standard could be “inspirational”.