Transparency and credibility are key in sustainable finance

responsAbility microfinance funds granted LuxFlag Microfinance Label

April 20223 min readFinancial InclusionImpact, Microfinance

All four of responsAbility’s microfinance funds have been granted the highly respected LuxFLAG label for the eighth year in a row, reflecting responsAbility’s role as an industry leader committed to quality and transparency. And with credibility in short supply in today’s sustainable investment world, transparency is key. Thus, increasing investment products’ transparency is at the heart of LuxFlag’s mission — to raise more capital for the Sustainable Finance sector by awarding a label to help investors distinguish eligible and credible sustainable investment vehicles in Microfinance, Climate Finance and ESG (Environment, Social, and Governance).

A deep commitment to delivering returns and impact

The LuxFLAG Microfinance Label certifies that the microfinance fund mainly invests in the microfinance sector, directly or indirectly. Investing indirectly means that the investment vehicle can, rather than giving direct loans to microfinance institutions (MFIs), invest in other microfinance investment vehicles themselves investing more than 50% in microfinance. Also, the LuxFLAG certification confirms that the labelled investment vehicle meets high international standards recognized in the microfinance sector. As the Labelling Agency continuously expands eligibility requirements concerning governance and social performance, a LuxFLAG-certification reflects an investment manager’s deep commitment to delivering on both financial returns as well as on impact. An applicant Investment Fund must fulfil the disclosure requirements defined under Article 9 of the European Union’s Sustainable Finance Disclosure Regulation (SFDR) – a criterion complied with by all responsAbility’s funds, making them “dark green”.

The LuxFLAG Labels are recognized among investors for their high standards and in-depth assessment of applicant investment vehicles’ investment holdings, strategy and procedures with respect to sustainability. Further, with increasing transparency as a primary objective of the Luxemburg initiative, investor transparency is a key component of the eligibility criteria for the LuxFLAG labels. And (more) transparency is clearly in the interest of a private investment sector committed to leveraging its might to promote the UN Sustainable Development Goals by mobilising private capital, targeting impact, while delivering attractive financial returns.

Transparency is also key to credibility

Credibility is in short supply in today’s private investment world. This is particularly true for the sustainable investment sector, which has seen spectacular growth in recent years. This expansion has in turn highlighted increasing concerns that investment managers may try to greenwash their product range to capture the increasing demand from investors. Therefore, responsAbility welcomes and supports initiatives, both regulatory and private, promising to increase transparency within the sustainable financial sector. More transparency renders markets more efficient, allowing for an allocation of capital better aligned with the choices of investors. This, in turn, increases much-needed credibility.

responsAbility’s microfinance funds’ objective is to offer investors a financially and socially sound investment in Financial Inclusion, thereby contributing to an accessible, well-functioning, resilient and inclusive financial sector in developing countries and emerging economies. This empowers people and businesses to achieve their goals and aspirations, and fuels social and economic development. By providing funding for financial services to the unbanked, including small and medium-sized enterprises, inclusive finance bolsters local economies by stimulating entrepreneurship and job creation.

While responsAbility’s microfinance funds directly and indirectly contribute to a broad range of UN Sustainable Development Goals (SDGs), a microfinance investment fund typically invests in businesses supporting the following SDGs: