Established in 1992, the EU Ecolabel is a symbol of environmental excellence awarded to products and services that meet environmental standards throughout their life cycle and provides guidance to companies on environmental best practices. Action 2.3 of the EU action plan on sustainable finance tasked the Commission with exploring the application of the EU Ecolabel framework to certain retail financial products including PRIIPs. The objective is to allow retail investors concerned with the environmental impact of their investment to rely upon a trusted and verified label to make informed investment decisions while incentivising financial markets to develop more products with reduced or positive environmental impacts.
A study carried out by Frankfurt School of Finance, Climate & Company and University of Kassel examines the application of the proposed Ecolabel Criterion 1 to a sample of 100 ‘green’ UCITS equity funds domiciled in the EU to determine the eligibility of these funds for the Ecolabel. The testing required an in-depth analysis of the activities of the underlying portfolio constituents to determine the green revenue share under the EU Taxonomy of each fund’s portfolio. The study also utilises modelling and scenario analysis to address identified gaps in the environmental data reporting.
The study will assist with the development of the Ecolabel criteria for financial products and assessing whether the proposed criteria achieve the right balance between promoting environmental excellence and maintaining the integrity of the EU Ecolabel while ensuring there are a sufficient number of eligible products available in the market.