AMWatch

New Nordic ecolabel for investment funds almost ready for launch

Most retail investors have never heard of UNPRI, Morningstar, or Morgan Stanley ESG framework. But more and more retail clients are showing interest in putting their money in sustainable investments. A new labeling is planning to show them the way.

For many years it has been possible to buy ecolabeled dish-washing liquid and shampoo. Even makeup and wood burning stoves can now be embellished with a label that proves the ecologic sustainability of the product.

Now the Nordic Swan Ecolabel has decided to move into new territory and give out ecolabels to investment funds that fulfill certain criteria.

Already by the end of June this year, it will be possible to be certified by the Nordic Swan Ecolabel.

The Nordic Swan Ecolabel is an independent nonprofit organization, founded in 1989 by the Nordic Council of Ministers. But why would one choose to be certified by Nordic Swan Ecolabel as opposed to branding your product with the UN principles for responsible investing, or maybe a labeling from Morningstar?

"Getting the Nordic Swan Ecolabel is a good idea because our recognition factor is very high among the citizens in the Nordic countries.  Around 90 percent of the Nordic people recognize our brand, and hence we help the investment funds attract more money into their sustainable funds," says Per Sandell, product manager at Nordic Ecolabelling Svanemærket in Sweden.

Per Sandell also points out that the Nordic Swan Ecolabel is an independent and third party labeling institution with no special ties to the financial industry. This is also an advantage, he points out.

The whole idea of the labeling is to give ordinary people a visible label to go by whenever they wish to invest their money in a sustainable product, in the exact same way as when they go for Nordic Ecolabel when they buy toothpaste or vacuum cleaners.

How it works

"We expect to have one or two meetings with the fund company before it applies for the label, and then we need to see all their documentation to ensure they fulfill our criteria. One of the things we will be looking for is that the investment fund has processes in place so that they can keep up with criteria over the years," Per Sandell explains.

The funds are required to do an internal audit on an annual basis to ensure compliance with the Nordic Ecolabel criteria. The audit report goes to Nordic Ecolabel, which can then choose to do a more in-depth audit if they want.

The requirements and audit will cover the investment fund as a whole and hence it does not guarantee each individual position in a given portfolio.

At the Norwegian Consumer Council, Forbrukerrådet, Head of Section Finance Jorge B. Jensen says:

"I am quite sure that the Swan brand on mutual funds will be valued by consumers – and I think the setup might nudge the financial industry into a stronger emphasis on ESG. Let's see how much the managers are going to commit themselves to this label. If the commitment is high, of course you can take a different kind of action than if the commitment is weak."

The criteria are quite general, and range from excluding oil, tobacco, coal, GMO crops production, weapons, and violations in general of selected international norms and conventions.

Anybody can get a label. Also investment funds based outside the Nordic countries can get a label, as long as they sell their product in one of the Nordic countries.

"To be a consumer in the financial markets today is very, very difficult. The ESG measures have increasing importance to several groups of the end consumers, particularly younger consumer groups. But they don't always know how to look for ESG criteria. So we are in favor of this Swan labeling," Jorge B. Jensen from Forbrukerrådet explains.

However, the labeling still has work to do when it comes to trust.

"The label simplifies things for the consumer, but whether it is trustworthy or not as a label still has to be shown. That is the next step in the process, which Nordic Swan Ecolabel obviously has to assess later on in the process," Jorgen B. Jensen concludes.

The end investor will end up paying for it

Nothing in this world comes for free. Neither does a Nordic Swan Ecolabeling. If one wants to be certified, one has to pay.

There will be an application fee of EUR 3,000 as well as an annual license fee of EUR 15 per million euro AUM.

But those are not the only costs attached to the labeling. Anders Klinkby, CEO at the Danish Investment Fund Association (IFB) points out that the implementation itself of the criteria will be expensive. 

"One of the challenges is that so far, it looks very expensive and it will carry a significant cost to implement and maintain. This cost will be carried by the end investor. So there is a trade-off between what would be the benefits of meeting the Nordic Swan Ecolabel standards, and what would be the negative impact on the risk-adjusted return after investment costs," Klinkby says while emphasizing that negotiations on the implementation of the new certification is still ongoing.

But you could say the same for the UNPRI, couldn’' you?

"This seems significantly more expensive, because the demands are significantly higher and more extensive. That is my impression at the current point in time and this will show in our response in the official hearing process," Klinkby says.

Overall, the Investment Fund Association finds it positive that there is a rising interest towards sustainable investments.

The hearing process ends on February 27 2017.

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