Towards Sustainability label remains a strong asset

Highlights

• The number of labelled products slightly fell from 792 to 735 products between the end of 2023 and the end of Q3 2024 (-7%).
• While the implementation of the new criteria has had an impact on the number of labelled products (-17%), 81 new products (+10%) have been awarded the label since the introduction of the latest revision.
• More than 500 billion euros are currently managed in line with the criteria of the Towards Sustainability Quality Standard, of which an estimated 25% is distributed in Belgium.

After the introduction of the revised criteria at the end of 2023, the full reverification process has now been completed. All products that previously received the label under the older criteria needed to reapply and demonstrate compliance with the new criteria.

At the end of Q3 2024, the Towards Sustainability label has been awarded to 81 new products under the new criteria, in addition to the renewal of existing labels. These results show that the label continues to be viewed as a strong asset, also by asset managers applying for the first time, even though the ambition and expectations of the Quality Standard have increased significantly. Out of the 792 products labelled end 2023, 138 products do no longer carry the label because the product’s investment goals did no longer align with the label’s expectations, or because of more technical or administrative reasons. However, the 81 products from 26 managers that received the label for the first time, fully met the revised criteria straight away.

More stringent criteria since 2024

The year 2024 marked the implementation of the newly revised criteria of the Quality Standard, that raises the label’s ambition with regards to the energy sector, exercise of voting rights, minimal impact of ESG-strategies, and portfolio-level performance on GHG-intensity and gender diversity.

As a result, some criteria on specific ESG investment strategies have become stricter and more precise to make sure that they really affect the portfolio composition. For instance, a strategy to outperform the benchmark on CO2 emissions must now beat the benchmark with a minimum percentage. Applying a best-in-class or best-in-universe strategy shall lead to a reduction of the investable universe by at least 25%.

Corporate engagement processes and voting policies in sectors with elevated risks are subject to additional transparency and disclosure requirements to ensure their effectiveness and impact.

The revision on oil & gas industry is also significant as it rules out all companies with fossil expansion activities, leading to the ineligibility of a large part of the energy sector of which the transition pathway is deemed inadequate. Most labelled funds already preempted this stricter approach in their investment policies, however, some funds discontinued the label for this reason.

A more selective revision process

Since 2024, the revision process has evolved to a more targeted approach focussing on specific sustainability issues, instead of the biennial comprehensive revision used before. The new approach is based on multistakeholder consultations and thematic workshops. The first thematic event covering biodiversity was held on 28 June 2024 in Brussels. A second thematic event will take place in December 2024 on social and labour rights.

A tool to help the investor

The Towards Sustainability label focuses on transparency and the provision of relevant and helpful information. A user-friendly online search tool provides a clear and comprehensive sustainability ID for each labelled product, to help investors find a product that is in line with their personal sustainability preferences and convictions.

Independent supervision and verification

The Towards Sustainability label helps to prevent greenwashing by establishing a minimal but ambitious level of sustainability. Its strong independent control mechanisms protect the integrity of the label. The Towards Sustainability Labelling Agency (CLA) has appointed an independent Verifier to assess whether all products meet the conditions of the Towards Sustainability Quality Standard, through analysis of investment policies, on-site audits, and ongoing portfolio monitoring. Currently, the Verifier is a consortium consisting of Forum Ethibel, ICHEC Brussels Management School and the University of Antwerp.