With the UN’s climate change summit, COP26, just around the corner, there is an even greater awareness within the investment industry of the crucial role it plays in driving meaningful change. And, as investors themselves increasingly look for ways to ensure their money is being used for good, ESG investing is set to dominate much of the conversation surrounding the creation and dissemination of investment funds.
Eco-Labels are one such way that fund managers can demonstrate that their funds are meeting certain ESG standards. Martin Neason, FE fundinfo’s Head of GFR (Global Funds Registration) – Business Development, talks through FE fundinfo’s new service which has been specially designed to help fund managers certify their ESG credentials through a recognised third party and further support investors to distinguish sustainable investments.
Why are Eco-Labels so important to the fund industry?
For many investors, it can be difficult to fully understand a fund’s ESG credentials, while for fund managers wanting to sell their funds, it can be similarly difficult for their products to stand out in a competitive market. In a world where there is a multitude of ratings, awards, data standards and fund objectives to choose from, how do both investor and fund manager get what they want? Similarly, when fund managers want to market their funds in different jurisdictions with different standards, it can be difficult to know where to begin.
Eco-Labels are a mark of quality which allow fund managers to promote their ESG credentials and, as they are awarded on a country-by-country basis, investors can be confident that funds obtaining the mark appropriate to their country have met a certain set of criteria which most reflects their local requirements.
What do fund managers need to do to gain an Eco-Label accreditation?
The application process and list of criteria varies with each market and often come with strict rules on when they can be applied for and renewed. They can also be awarded to a wide range of investment products but must meet certain and variable standards. Different territories will have different areas of focus, with some placing more emphasis on the ‘E’ – environment – of ESG investing, while others will look more at the ‘S’ – social – and ‘G’ – governance. One example of how different things can be is in Germany where any fund which has holdings in nuclear energy will be de facto excluded from their Eco-Label, while just over the border in France, nuclear energy is an acceptable asset class. For a fund group operating across a multitude of territories in Europe, you can see how complex it can become keeping up to date with these market differentials.
Added to this, labels are awarded annually and some have strict submission deadlines. Nonetheless, funds must also demonstrate they have met the label’s criteria consistently throughout the year, placing a considerable administrative burden on a fund group’s operations. When you factor in translation costs for fund documents and the time needed to fully understand cultural differences and local market conditions, cross-marketing can be a costly and complex endeavour.
What is FE fundinfo's Eco-Label service?
Essentially, we will manage the entire application and renewal process from start to finish, acting as an expert consultant. This involves undertaking an initial screening of a fund and, depending on the result, work to prepare and submit an application or provide advice on how the fund can meet the chosen Eco-Label criteria.
Following this, we provide a detailed output on the various aspects of the criteria that go into the screening process. This includes feedback on the likelihood of a fund receiving the chosen Eco-Label accreditation and highlighting any criteria that were marked as a fail.
A combination of our Global Funds Registration (GFR) and ESG capabilities help manage the application process from screening through to accreditation, providing the opportunity to amplify the fund’s ESG credentials in key marketing documents and content.
Why have you launched an Eco-Label service for ESG investing?
We understand how difficult it can be to apply and manage the Eco-Label accreditation process and in our role across the broader funds industry we were finding an increasing number of our clients asking if we could help them manage this process for them.
As ESG investing has taken off, many fund groups recognise the need to evidence their commitments to sustainable and responsible investing, as well as showing the highest levels of transparency. As trusted partners and with our expertise in understanding the compliance issues and stringent disclosure requirements that surround fund creation and registration, we were in a unique position to help our clients with this crucial business need.
Where can organisations go for more information?
For help with obtaining an Eco-Label, fund groups can contact our Global Funds Registration team, which is our specialised consultancy and project management service that helps remove the administrative burden of obtaining authorisation and distribution rights for your funds in other jurisdictions. They can be reached here.