1.1 What is the purpose of the Towards Sustainability Quality Standard?

The Quality Standard sets a credible level and high-quality implementation of sustainability for financial products that call themselves ‘sustainable’ or ‘socially responsible’ - going beyond legal compliance.

The standard operates along three axes:

1)       Avoiding harm: money must not flow to activities that are generally considered unsustainable.

2)      Pursuing positive impact: financial products with the label must actively choose investments that contribute to the environment, social welfare or good governance.

3)      Transparency: labelled products must disclose how they put both of these objectives into practice.

The label is not a final destination, but a starting point. It indicates that a financial product is on its way toward sustainability, not that the end point has necessarily already been reached.

1.2 Can the manager of a financial product decide what he considers ‘sustainable’?

Yes, but only with regard to pursuing a positive impact. The manager of the product is free to choose certain themes or a focus. For example, there is no obligation to invest in renewable energy or to prioritize climate over social themes.

Which investments are excluded in order to avoid harm is, however, set out in detail by the standard. (See further: Exclusions)

What remains mandatory is that the chosen approach must have a demonstrable impact on the selection of investments, and the manager must be transparent about it.

Conclusion: Alongside a number of obligations, the manager of a financial product may partly decide what he considers ‘sustainable’. As a result, two investment funds with the label can have very different sustainability profiles, while both comply with the same minimum Quality Standard.

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Below we briefly explain the mandatory and optional strategies that a financial product must or can implement in order to obtain the Towards Sustainability label.

If you want to learn more about these strategies for sustainable investing, you can take a free e-learning course with our partner Duurzaam Beleggen Academy.

2.1 Which strategies must a financial product implement as mandatory?

A labelled product always combines three mandatory strategies plus at least one additional core strategy:

1.        ESG integration: This means that investments are analysed on how they perform in terms of environment (E), social policy (S) and good governance (G). Integration means that these ESG analyses are systematically weighed for every position in the portfolio when deciding whether or not to invest.

This requires looking at so-called double materiality. This means that you look not only at how ESG risks affect a company’s financial performance, but also at what negative impact the company in turn has on the environment and society.

2.       Normative screening: products with the label may not invest in companies that structurally, repeatedly and seriously violate international norms.

Which international norms? These include, among others, the UN Global Compact, the UN Guiding Principles on Business and Human Rights, the OECD Guidelines for Multinational Enterprises and the conventions of the International Labour Organization (ILO).

Very concretely, this concerns international agreements such as a ban on child labour or respect for human rights and the environment.

3.       Exclusions: certain sectors and activities are categorically prohibited (see section 3).

4.      + One additional core strategy of choice to pursue a positive contribution (see question 2.2).

At least 80% of a financial product’s portfolio must comply with these strategies. The remaining 20% may consist of ‘technical assets’ such as cash, non-speculative derivatives or broad market index products for hedging risks. These do not need to be screened, but may also not undermine the sustainability character of the product.

2.2 Which additional core strategies can a financial product pursue?

A financial product with the label can choose from various strategies to pursue a positive impact.

• Best-in-class/universe: only companies that score best in terms of the environment (E), social policy (S) and good governance (G) are eligible for investment.

​​o This selection of the best companies can be made per sector (best-in-class) or for the entire investment universe (best-in-universe).

​​o The result must be that the number of potential investments is at least 25% smaller than without this strategy.

• Thematic investing: the product invests in one or more very concrete sustainability themes. Think, for example, of renewable energy, clean water or the circular economy.

​​o At least 70% of the selected companies or 50% of the assets under management must be linked to the theme. In addition, at least 50% of ​ ​each company’s revenue must derive from that theme.

• Impact investing: the product pursues a measurable, demonstrable positive impact. This means that the investments go to companies with a service or product that offers a solution to a specific problem.
• Outperforming a benchmark: a product is compared to one or more similar products and must come out better from that comparison on certain self-chosen ESG indicators. This concerns, for example, CO² intensity. This looks at how much emissions there are per million euros invested.

Outperforming concretely means that the product performs 15% better than that benchmark, or 5% better if it concerns a ‘sustainable’ benchmark.

• Another strategy: there are other ways to pursue a positive contribution. These are eligible if they are recognized by the Towards Sustainability labelling agency and demonstrably lead to more sustainable investments.

3.1 How do the exclusions work?

The standard categorically excludes a number of activities. This means that a product with the label may not invest in them.

How does this work in practice? In general, a threshold of 5% of revenue OR 5% of capital investments (capex) applies. In other words, companies that derive more than 5% of their income from that activity, or allocate more than 5% of their investments to it, are not eligible for investment.

This double test is important: a company that still derives little revenue from a harmful activity but invests heavily in it is thus also excluded. Companies that are expanding significantly in excluded sectors therefore do not stay under the radar.

Affiliated entities count. An example to make this clear: an investment company that does not itself produce tobacco, but has a subsidiary that does exceed the thresholds, is nevertheless excluded.

For the sake of clarity: if a company stays below the thresholds, an investment is not automatically permitted. The manager must assess, justify and communicate this transparently on a case-by-case basis.

3.2 Which activities are categorically excluded?

• Tobacco: the production, processing, distribution and sale of tobacco products and e-cigarettes, across the entire chain, is prohibited. There are no exceptions for alternative tobacco products or companies claiming to diversify.
• Controversial weapons: absolute zero tolerance, without threshold (see question 3.3).
• Thermal coal: This is the extraction of coal for power generation. Coal for steel production falls under a separate assessment.
• Unconventional fossil fuels: This concerns oil from tar sands, shale gas and oil (fracking), coalbed methane, and fossil fuels from Arctic areas. Each of these categories is excluded because of the combination of high CO₂ intensity, ecosystem risks and the absence of a credible transition perspective.

3.3 Which weapons are absolutely prohibited?

As an example of how such an exclusion policy works in practice, we take a closer look at investments in weapons.

For controversial weapons, absolute zero tolerance applies. Any involvement, however small, leads to exclusion. Controversial weapons include:

• Cluster munitions
• Anti-personnel mines
• Biological and chemical weapons
• Nuclear weapons
• Weapons with depleted uranium or other industrial uranium
• White phosphorus weapons
• Blinding laser weapons
• Fuel-air explosive munitions (thermobaric weapons); these are weapons that use oxygen from the surrounding air to cause a very powerful explosion.

What about other weapons or investments in defence?

For conventional weapons and defence equipment, the normal threshold rules apply. Companies that derive less than 5% of their revenue or investments from the production or sale of weapons can be eligible for a labelled product.

The standard also makes a distinction for suppliers: companies that supply specialized components, equipment or services specifically intended for the weapons industry may not derive more than 25% of their revenue from this. This higher threshold applies only to suppliers, not to manufacturers or sellers of weapons themselves.

3.5 How does the standard deal with the fossil fuel sector?

The standard distinguishes between three segments in the fossil fuel sector, each with its own logic.

Unconventional oil & gas — tar sands, shale fields (fracking), coalbed methane, extra-heavy oil and drilling in Arctic areas — is subject to the strictest regime. A company in this segment is only eligible if it meets at least one of the following conditions:

• It has a science-based climate plan validated by scientists (SBTi, aimed at a maximum of 1.5°C warming).
• It derives less than 5% of its revenue from these activities
• Unconventional production accounts for less than 5% of total oil and gas production
• More than 50% of investments go to sustainable activities.

In addition, a company may not explore or develop new unconventional fields, and absolute production capacity may not increase.

Conventional oil & gas is subject to a similar but somewhat more lenient test. In addition to the criteria that also apply to unconventional, a company can also be eligible if:

• Emission intensity is scientifically demonstrably in line with a maximum global warming of 1.5°C.
• Less than 15% of investments go to fossil activities without an expansion target,
• More than 15% of investments go to sustainable activities.

Here too the rule applies: no exploration of new fields and no expansion of production capacity.

Companies that meet none of the criteria — the laggards — are excluded, regardless of their revenue figures. The manager is responsible for this assessment and may not blindly rely on external ESG ratings.

Power generation has separate rules per technology, similar to the coal sector.

• Companies with coal-fired power plants are excluded as soon as these represent more than 5% of revenue or investments, unless they meet strict transition conditions.
• Gas-fired power plants are not necessarily excluded, but require a credible transition plan: natural gas is regarded as a transition energy source, not as a final solution.
• Nuclear energy is not excluded.
• Renewable energy is assessed positively.
• Utility companies with a mixed energy mix are assessed on their overall profile and transition pathway.

For suppliers, they may not derive more than 25% of their revenue from specialized products, equipment or services specifically intended for the fossil fuel sector.

4.1 What are the minimum requirements for companies in a labelled product?

A company may not fall under the exclusions and must respect the main international norms (see sections 2 and 3). In addition, the manager must be able to demonstrate an ESG assessment for each investment, even if no external data is available.

The portfolio may therefore not contain ‘ESG blind spots’. In other words, positions whose potential impact is entirely unknown are not permitted. The manager must supplement missing data through direct contact with the company itself, third parties, or substantiated estimates.

4.2 How are banks and insurers assessed?

Financial institutions are assessed differently from ordinary companies, because their product is the provision of capital. The standard looks not only at their own operations, but also at what they finance. A bank that, for example, issues sustainable bonds itself but at the same time finances coal mines through its credit portfolio, does not comply with the standard.

Concrete requirements for a financial player:

• No direct financing of companies in excluded sectors
• ESG integration in credit and investment policy
• Normative screening of its own clients
• Transparency about how ESG is applied in its own portfolio and lending.

4.3 How does the standard deal with government bonds?

Government bonds are loans to governments. These are assessed separately. Governments must meet minimum requirements in areas such as democracy and the rule of law, human rights, anti-corruption, and international treaties.

Countries that structurally violate human rights or are governed autocratically are excluded.

5.1 What is active dialogue and what does the standard specifically expect?

Active dialogue or stewardship means that the manager actively engages with companies and exerts pressure on them to become more sustainable.

The Quality Standard requires a formal engagement policy with at least four elements:

• Clear goals and priorities: clarity about expectations regarding specific themes such as reducing emissions, biodiversity, human rights and gender diversity on boards of directors.
• An escalation procedure: if a company does not respond adequately, the manager must take steps — ranging from asking questions at shareholder meetings to voting against management, public statements, or ultimately divestment, the decision to sell the investment.
• Voting rights: managers must exercise their voting rights in at least 50% of companies in sectors with elevated risk, such as textiles, agriculture, mining, fossil fuels, cement, shipping and aviation.
• Reporting: an annual report on the results of the engagement, including the number of companies contacted, the average duration of an engagement process, and the outcomes. 
  

6.1 What quantitative requirements does the standard impose on the portfolio as a whole?

In addition to the required strategies, the standard imposes three measurable expectations on the non-technical component* of the portfolio, accounting for at least 80% of the investments.

CO² intensity: the manager measures and publishes the Weighted Average Carbon Intensity (WACI), including scope 3 emissions if these are reliably available. A mouthful to indicate that a product must report how much CO² emissions there are per million euros invested, across the entire production chain.

This CO₂ intensity must be lower than that of the reference benchmark, or lower than the regional threshold values set annually by the labelling agency. A product may fail to meet this requirement for one year, but not for two consecutive years.

Gender diversity: the manager measures and publishes the gender diversity on the boards of directors of the companies in the product’s portfolio. The standard expects the portfolio to score better than the reference benchmark, or that at least 33% of board members are of the underrepresented gender.

Sustainable investments: the manager publishes what percentage of the portfolio qualifies as a ‘sustainable investment’ under European rules (SFDR art. 2(17)) and which calculation method it uses for this.

A minimum share is not yet mandatory, but will be introduced once the European definition is sufficiently crystallized for comparable reporting.

*The ‘technical component’ of a portfolio consists of assets such as cash, non-speculative derivatives or broad market index products for hedging risks. These may make up a maximum of 20% of the portfolio. 

7.1 What information must a labelled fund disclose?

The standard requires active transparency at two levels.

At the level of investment policy: Transparency about how harmful activities are avoided, which additional strategy is applied to make a positive contribution, and how active dialogue is organized.

At the level of the portfolio: information about CO₂ intensity, the gender diversity score, the asset composition (corporate versus government bonds, labelled versus non-labelled) and the share of sustainable investments. All this information must be publicly available on the manager’s website.

The Sustainability ID, the product sheet you can find for every product with the label on the Towards Sustainability website, summarizes these key parameters per product in a standardized way.

This Sustainability ID allows investors to easily compare products with each other and to search among the wide range of labelled products for, say, a particular strategy for making a positive contribution or a particular theme.

7.2 Who checks whether the Quality Standard is met, and what are the consequences of a breach?

Independent oversight is in the hands of the Verifier, a partnership between the research institute Forum Ethibel, ICHEC Brussels Management School, and the University of Antwerp. The Verifier carries out an annual audit.

Managers are required to immediately report significant changes to their sustainability policy and may not passively wait for the annual audit.

Depending on the severity of the breach of the standard, the CLA, the labelling agency that manages the Towards Sustainability label, can grant an adjustment period, suspend the label, or withdraw it permanently.

If a fund loses the label but does not communicate this to investors, investors and competitors can take legal action. 

8.1 How does the Quality Standard evolve?

When the label was launched in 2019, a biennial review was planned. As a result, the Quality Standard was tightened in both 2021 and 2023.

Since then, an approach has been chosen involving thematic working groups with a wide range of stakeholders who examine specific topics such as the climate transition, biodiversity, or social inequality.

In 2026, against the backdrop of ESG deprioritization and scepticism, originating in the US but also spreading to Europe, the CLA has decided to perform an evaluation of the label and a new revision of the Quality Standard. This will also be an opportunity to assess the label’s alignment with the upcoming revision of the Sustainable Finance Disclosure Regulation (SFDR2).

The evaluation is projected to run from September 2026 to April 2027, with the aim to publish the conclusions by June 2027. The exercise will be conducted in consultation with portfolio managers and other stakeholders such as academics, civil society, policymakers.

8.2 How does the Quality Standard compare to other European labels?

The Towards Sustainability label is considered, in European comparative research, one of the most demanding broad sustainability labels for financial products.

It is not a dark green label for products that primarily aim for impact or climate. Towards Sustainability is a broad standard that seeks to reach as many managers and products as possible without making concessions on the core criteria.