SFDR prerequisite removed from ESG label criteria by LuxFLAG
In a significant move towards promoting sustainable investing, LuxFLAG, the Luxembourg Finance Labelling Agency, has updated its ESG label eligibility criteria as of July 2025. The changes aim to improve clarity, expand global applicability, and strengthen environmental, social, and governance (ESG) practices.
One of the key changes is the removal of the requirement for funds to be classified as Article 8 or 9 under the EU Sustainable Finance Disclosure Regulation (SFDR) to qualify for the LuxFLAG ESG label. This move supports LuxFLAG's global outreach beyond the EU regulatory framework.
Another significant change is the strengthened ESG due diligence requirement. ESG due diligence must now be systematically integrated into the investment process for 100% of portfolio holdings, marking a more stringent requirement for comprehensive ESG assessment throughout the portfolio.
The updated criteria also integrate the ESG Discretionary Mandate Label, governing both investment products and discretionary mandates under a single, unified ESG label framework. Terminology around sector exclusions and engagement has been clarified to better align with regulations like Paris-Aligned Benchmarks.
A look-through approach applies to fund-of-fund structures, and sovereign bonds, use-of-proceeds instruments, and sustainability-linked bonds must be supported by a documented framework. Managers of labelled products must be signatories of recognized responsible investment frameworks such as the UN PRI.
These updated criteria are effective immediately and apply to all new and renewed applications. As a result, several new products have been added to the labelling regime, including Arkéa Euro Impact Infrastructure Transition Debt 2, Arkéa Euro Core infrastructure Transition Debt 2, Arkéa Exclusive Impact Infrastructure Debt, CapitalatWork Equities Plus Sicav - Equities Plus At Work DECBF I SCSp, and IVO Euro Flexible Short Duration SRI.
As of the update, there are over 240 products labelled by LuxFLAG, available in jurisdictions including Belgium, Estonia, France, Germany, Ireland, and Luxembourg. Engagement on ESG-related matters is encouraged in sectors excluding Coal, Oil & Gas, Electricity Generation, Palm Oil, and Pesticides & GMOs.
The LuxFLAG ESG label is a recognition for investment and insurance products that demonstrate strong ESG practices. The labels are awarded for a period of three years and are due for renewal upon expiry. LuxFLAG, an independent non-profit association created in Luxembourg in July 2006 by seven private and public founding partners, continues to play a crucial role in promoting sustainable investing.
- The revised LuxFLAG ESG label criteria, effective from July 2025, no longer necessitate funds to be classified as Article 8 or 9 under the EU Sustainable Finance Disclosure Regulation, extending the label's global applicability beyond the EU regulatory framework.
- To obtain the LuxFLAG ESG label, managers of labelled products must now systematically integrate Environmental, Social, and Governance (ESG) due diligence into the investment process for all portfolio holdings, reflecting a more rigorous ESG assessment throughout the portfolio.
