In addition to the CTB exclusions and the same weapons exclusions as the established FNG-Label (i.e., conventional and broader scope of controversial weapons), the FNG-Label Transition is subject to further minimum requirements to ensure the quality of transition strategies.

Definition of transition investments
The EU Commission’s proposal serves as the basis for the definition of transition investments (see: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32023H1425). According to this, transition means an improvement in sustainability performance in line with targets such as the 1.5 degree target of the Paris Agreement or the other environmental targets of the EU taxonomy. Transition investments are therefore investments in:

• Portfolios that replicate CTB or PAB benchmarks,
• Taxonomy-compliant economic activities (transition activities or economic activities that will become taxonomy-compliant within a maximum of 5 years – in exceptional cases 10 years),
• Companies with a credible transition plan,
• Companies with credible science-based targets (e.g. SBTi pathway).

Beyond this understanding, the environmental SDGs can also be used as the basis for a transition strategy.

Social aspects are largely missing from the current EU definition. The FNG-Transition label addresses this point and calls for social SDGs to be covered as part of the transition strategy.

DNSH principle (Do No Significant Harm)

According to SFDR (Art. 2(17)), sustainable investments must not cause significant harm to other sustainability goals. As no specific criteria yet exist for transition investments, the FNG Transition Label also integrates the DNSH principle for transition investments. Investments in issuers or economic activities that cause significant harm at the time of the investment are permitted if

1. the reduction of this damage is part of the product’s transition strategy, and
2. the issuer or activity is on a credible path to achieving the sustainability goal.

For all other sustainability goals that are not the focus of the transition strategy, the DNSH principle applies without restriction. The assessment is based on the Principal Adverse Impact (PAI) indicators, as is already the case for sustainable investments in accordance with SFDR Art. 2(17).

Prevention of transition-washing

For products that demonstrably invest in so-called “high-impact” sectors and wish to apply for the FNG Transition label, the following applies: The transition strategy must at least relate to the climate/environmental transition (based on the sustainability goals of the EU taxonomy or environment-related SDGs). This prevents a coal producer, for example, from being considered a transition investment because it implements a transition element in the social sphere. Anyone investing in fossil fuels must consequently pursue an environment-related transition strategy. This requires further information on investments in “high-impact” sectors. The definition of “high-impact” sectors follows the CTB and PAB Regulation (Art. 3, see https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32020R1818)

The exact details for both FNG seals will be formalized as usual in the revised procedural conditions by the end of March at the latest.