The criteria for the FNG label in the DACH market

In the rapidly changing landscape of sustainable investing, market shifts in Germany, Austria, and Switzerland are reshaping the financial industry, driving a deeper integration of Environmental, Social, and Governance (ESG) principles. The adoption of the FNG (Forum Nachhaltige Geldanlagen) Label in these markets highlights the growing importance of responsible investing, reinforcing the commitment to sustainability and ethical finance.

‍What is the FNG Label?

FNG Label is an SRI (Socially Responsible Investing) quality standard for the German-speaking markets, including Austria, Liechtenstein, Switzerland and Germany. The Label is a recognized certification standing for ‘’Forum Nachhaltige Geldanlagen’’ which translates to the Forum for Sustainable Investments and entails commitment to the integration of the overall harmonization of sustainable investments desired by the EU. This label signifies that a financial product, typically a mutual fund, adheres to specific standards of sustainability and social responsibility. The aim is to promote transparency within sustainable finance, by ensuring that certain funds contribute positively to society and the environment.

‍What are the main requirements to be met? 

Investment funds or similar vehicles from all asset classes that are managed sustainably can apply for the FNG-Label, provided they comply with UCITS or an equivalent standard and are authorized for distribution in at least one of the following countries: Germany, Austria, Switzerland, or Liechtenstein. Some of the main aspects of the FNG Label include evaluation criteria, star rating, third-party audits, objective and market recognition. The Label mandates the fulfillment of specific minimum requirements. To receive the Label, the product must meet all these minimum standards. Applicants who meet both the minimum requirements and the grading model criteria can earn up to three stars, indicating different levels of quality. The number of stars awarded depends on the percentage points achieved in the grading model. Here are the criteria in order to be awarded an FNG Label: 

Compliance with SFDR: The basic requirement is compliance with Article 8 or 9 of the EU Sustainable Finance Disclosure Regulation. The product applying must be classified accordingly. 

Transparency and Accountability: Funds must provide clear and comprehensive information about their investment strategies, ESG criteria, and decision-making processes.

ESG Integration: Funds need to demonstrate the integration of Environmental, Social, and Governance (ESG) criteria into their investment analysis and decision-making processes.

Exclusion Criteria: Certain industries and practices, such as weapons manufacturing, nuclear energy, and violations of labor rights, must be excluded from the fund's investment universe.

‍Active Ownership: The fund should engage in active ownership practices, including shareholder voting and dialogue with companies, to influence their ESG practices.

Impact and Sustainability: Funds are evaluated on their contribution to positive environmental and social outcomes, aligning with sustainable development goals.

Independent Verification: Funds must undergo an independent verification process to ensure compliance with the FNG Label's criteria.

To be reviewed and assessed for 2025 labels, the required information for all applicable criteria (both minimum and grading model) asset managers must have submitted their applications online by July 7, 2024.

What were some of the most recently adopted changes by the FNG Label?

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1. Changes in the assessment of product standards (reporting)

Since optional elements in the FNG-Label in anticipation of regulation led to a quality upgrade, which have now become mandatory under the Disclosure Regulation, it will continue to be necessary to assess the corresponding criteria in an adjusted manner. For example, in the "Product Standards" category, the sub-category "SRI Reporting", as the requirements of the EU Disclosure Regulation continue to lead to regulatory-driven developments in the assessment here. This can lead to a drop in the overall score for reapplying funds that have not made any year-on-year improvements. This may ultimately even lead to the loss of a star.

2. Dealing with asset classes or product categories not always listed in advance in these rules of procedure (e.g. ABS and Cat Bonds)

Just as in the case of the product category "sustainability bonds", for which a use of proceeds can be assigned and violations of the minimum exclusion criteria are applied at product level, the principle of the use of proceeds or the final beneficiary also applies to other asset classes or product categories, for which it is unfortunately not always possible in advance of an application to write down the respective handling in these rules of procedure. For example, in the case of catastrophe bonds (Cat Bonds) or asset-backed securities (ABS) (or more specifically mortgage-backed securities), the nature of the focused investment leads to a specific examination of the extent to which the exclusion criteria of the FNG-Label are included by these special investments.

3. Increased integration of the EU taxonomy

The classification of environmentally sustainable economic activities within the EU regulatory framework on sustainable finance is a suitable point of reference for being able to identify business fields explicitly considered "green" by the EU. The fact that the highly controversial areas of nuclear energy and natural gas are probably also to be included in the green taxonomy does not fundamentally change this for the time being. An investment fund applying for the FNG-Label must nevertheless describe the nature of its individual investments. Here, the (not general, but rather concrete) reference to the six environmental objectives of the EU taxonomy helps, for example, to establish a thematic reference or to better define KPIs (also over time or with a defined objective).

4. Increased random checks/compliance with the minimum criteria

The minimum exclusions must be complied with in accordance with the listed criteria over the entire label period. Investments in holdings that violate the minimum exclusion criteria of the FNG-Label are not label-compliant and therefore not permitted. To verify compliance, the assessment team may conduct random checks that go beyond the scope of the label award process.

How Datia can assist you?

Adapting to these new changes may seem daunting and confusing, but with the right tools, it can be simplified and easy. Whether you're an asset manager seeking to maintain your FNG label and adhere to the updated guidelines or looking to create new sustainable investment offerings, Datia is here to help.

Our comprehensive and up-to-date modules, including ESG data and scoring, Principal Adverse Impacts monitoring and reporting, Temperature Score, EU Taxonomy, and Stewardship, provide all the data and insights you need to manage your FNG fund and ensure compliance with the latest standards.

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To discover how Datia can support your efforts with the FNG Label, book an introduction meeting with our team here.