Social funds

Give your social funds exposure to a wide range of investors by joining the Luxembourg Green Exchange (LGX).

The Luxembourg Green Exchange – A unique platform for social funds

LGX is a reference platform offering quality and transparency, with access to a large source of information across different sustainable financial instruments. Being displayed on one of the world’s leading reference platforms brings increased transparency and visibility for investors and issuers alike. It is easier to find reliable, relevant information in one central place. This improves comparability of products. The investors use the LGX platform on a daily basis to access information. Improved visibility also brings the opportunity of diversifying the investor base.

Displaying funds on LGX
Displaying funds on LGX

All social funds displayed on LGX

What makes a fund social?

A fund must allocate 75% of total assets to social-related sectors. 25% of total assets may be retained in the form of cash, liquid assets or other investments.

See the full list of criteria for social funds

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Social-related sectors are defined in a globally recognised classification system such as the social pillar of the EU Sustainability Taxonomy (once available). Alternatively, sectors made up of business activities and defined target populations that would be eligible for social bonds aligned to the ICMA Social Bond Principles are also considered social-related sectors. The portfolio of investment in social-related sectors must also correspond to at least 75% of the fund’s total assets.

For compliance with this criteria, the following considerations apply:
- A company is considered a social-focused company when its turnover in social-related sectors corresponds to at least 20% of its total turnover;
- The portfolio of investments in social-focused companies weighted by the proportion of turnover of each company in social-related sectors must correspond to at least 33%;
- Allowance may be made in the calculations of the 75% threshold if the portfolio of investments in social-focused companies weighted by the proportion of turnover of each company in social-related sectors is above 50%;
- In the specific case of a fund providing credit funding directly or indirectly to companies or other beneficiaries, the 75% threshold should refer to the proportion of qualifying social investments in the total portfolio;
- Committed investments may be considered in the calculation of the 75% threshold.
Accordingly, 25% of total assets may be retained in the form of cash, liquid assets or other investments.
Allowance may be made in this calculation under certain exceptional circumstances (including, but not limited to
market constraints, portfolio or capital reorganisations) for balances of cash or cash equivalents which are
temporarily unusually high. The fund must duly justify the application of the allowance to the 25% calculation.

The funds must explain clearly on what base they consider the companies in their portfolio as active in social related sectors and how these generate social impact. This includes an explanation of what social needs of specific target populations are met.

A fund must incorporate ESG considerations into the investment process, in addition to the consideration of social factors.

The ESG strategies may take the form of one or more of the following:
- Norms-based screening – approach based upon screening in accordance with recognised frameworks, such as the UN Global Compact or Human Rights;
- Multiple exclusions strategy – approach that excludes multiple investments or classes of investments from the investible universe;
- Best-in-class – approach where leading or best performing investments within a universe, category or class are selected or weighted based on ESG criteria;
- ESG integration – approach which analyses the ESG performance of companies and considers this in the investment process;
- Engagement – active ownership through engagement with companies on ESG matters;
- Voting – active ownership through voting on ESG matters;
- ESG ethical screening – approach based on a strategy dedicated to screening in accordance with specific frameworks or values such as ESG shariah or faith-based screening;
- Investing for impact – approach where specific impact objectives are targeted, measured and reported.
A fund must apply an exclusion policy.

A fund must demonstrate how it integrates its ESG strategy and criteria into the investment process.
The investment process must address ESG research process, construction of the investable universe, investment decision process, on-going portfolio monitoring and divestment.

A fund may, as an alternative to strict compliance with the above criteria, be awarded a reputable social fund label. Acceptable social fund label currently include LuxFlag Microfinance label.

Social investment strategies

Social impact
Social entrepreneurship and solidarity
Microfinance

Fund labels

Funds labelled by a labelling agency benefit from added credibility, transparency and superior quality standards. Funds which have been awarded labels recognised by LGX will automatically meet the portfolio screening criteria and will benefit from a fast-track procedure.

Social fund labels recognised by LGX

Asset managers with social funds on LGX

The Luxembourg Green Exchange in a nutshell

The market for sustainable finance investments has experienced rapid growth in recent years as attention has turned towards the Sustainable Development Goals and meeting the targets under the Paris Climate Agreement.

To help facilitate the development of this market, we launched, in 2016, the Luxembourg Green Exchange (LGX), a dedicated platform for sustainable securities abiding by recognised standards.

LGX aims to bring investors and issuers of sustainable financial instruments together on a single platform. To find out if your securities are eligible to join LGX, visit our How to join section.