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LuxFLAG Newsletter

N°9 - June 2013 Editorial by the Honorary Chairwoman of LuxFLAG Microfinance is no longer an experiment. With a thirty year track record in some markets, the industry has demonstrated its efficiency as a tool for eradicating poverty within communities where lack of opportunity is the break on economic and entrepreneurial activity. By broadening its scope to include a whole range of loan and savings facilities including coaching and technical assistance, microfinance plays a vital role in extending financial inclusion, creating positive social impact through empowerment and improving the living conditions of the poor. This is why microfinance has made such a significant contribution to meeting the first of the Millennium Development Goals: the 50% reduction of extreme poverty by 2015. When LuxFLAG came into being in 2006, I was delighted and honored to assume the first Honorary Presidency of the Association. Seven years later, I am proud still to hold this position. Much has been achieved but so much remains to be done. In the field of microfinance, we are beginning to see the fruits of regular food and education on the lives of second generation of clients; but these families remain fragile. University programmes and tailored insurance products are just two examples of the ways that microfinance is expanding to prevent a fall back into poverty. During the last seven years, the activities of the agency have evolved and the LuxFLAG name is now associated with sustainable finance and responsible investing. The Association continues to expand its market penetration of existing Microfinance and Environment funds and the development of additional Labels in the Responsible Investing field is being actively pursued. A recent ALFI-KPMG report on the European Responsible Investing fund market identifies a strong trend towards transparency, but predicts that third-party assurance will become “best practice” in the future. This is encouraging for our work. On 15 May 2013 ALFI, in conjunction with LuxFLAG, organised the second edition of its broadly scoped Responsible Investing conference, in Luxembourg. This conference, which draws together different strands in the responsible investing universe, has already proven its worth as a forum that generates initiative. Last year, we witnessed the birth of a Government sponsored task force. This year, a spate of initiatives in the field of entrepreneurship and social enterprise raised the question of entrepreneurial education for the young. I feel confident that the conference will become a regular fixture on the Sustainable Finance and Responsible Investing agenda, illustrating the commitment of the Luxembourg financial center to support responsible finance. LuxFLAG, as a committed stakeholder, strives to ensure transparency, quality and peace of mind for responsible investors. So many financial products have promised so much, and disappointed. We are standing at the brink of a major evolution in the role of financial services. Let us try, together, to avoid the mistakes of the past.

TABLE OF CONTENTS

HRH Grand Duchess Maria Teresa of Luxembourg

Key note article

Composition of the Microfinance Label Eligibility Committee . 6

Contribution from HRH Grand Duchess Maria Teresa of Luxembourg ................................................................. 1

Call for applications for the Microfinance Label . ........................... 6 LuxFLAG Environment Label

Social Impact Businesses – Shifting Financial Market Logic . .... 2

LuxFLAG Labelled EIVs ............................................................................. 7

Regulation and Microfinance – Opportunity or Burden? ........... 3

FTSE Environmental Markets Commentary ..................................... 7

Communication and networking activities ..................................... 4

GEEREF - first fund of funds ................................................................... 8

LuxFLAG Microfinance Label

Call for applications for the Environment Label.............................. 9

LuxFLAG Labelled MIVs ........................................................................... 5

Call for Associate Membership ............................................................. 9

LuxFLAG Labelled MIV story .................................................................. 6

Disclaimer ................................................................................................... 12

This newsletter is sponsored by 1


N°9 - June 2013

Social Impact Businesses – Shifting Financial Market Logic We are 5 years into one of the worst financial crises of human history. While on many fronts we are still busy with damage control, we also have turned to the search of new ways of organising our globalised economy and the financial markets to prevent us from repeating recent history anywhere soon.

In such structure Impact-shares would behave very much like shares in a non-for-profit organisation while the shares of financialreturn shareholders are in their characteristics very similar to traditional shares in a commercial company. Moreover, the governance of such structure would foresee that for-social impact shareholders and for financial return shareholders are mutually dependent on each other: social impact shareholders would look at financial-return-driven investors as a means to scale up the social impact of their business. Financial return driven investors would on the other hand see their financial return being conditional to the company meeting its social impact objectives.

One aspect that has been under severe scrutiny since the breakout of the financial crisis has been the social responsibility of financial markets. (i) The lack of ethical standards in the generation of financial returns, (ii) ill-designed concepts of value creation that were merely relying on value creation in a very distant future for reimbursing excessive levels of leverage taken in financial transactions, (iii) the dissociation of risk takers from the originators of financial risk, or (iv) the lack of transparency on risk and return allocation are just a few examples pinpointing major shortcomings in the functioning of our financial markets.

The result would be a construct in which different mind-sets of shareholders support the same business objectives for different reasons and motivations – and the regulatory framework would set the rules of the game. We have known such concept of a spectrum of preferences and motivations of shareholders funding the same business since a long time in the traditional financial markets: how many different risk/return profiles do we offer to investors of one and the same company to build the funding side of its balance sheet? Why shouldn’t it be possible to offer the same diversity of profiles for the relationship between social impact and financial return?

The proposed cures to these shortcomings are manifold. The biggest community undoubtedly calls for additional regulation and indeed, new restrictive legislative initiatives are on their way: the AIFMD directive, debates on incentive schemes for the financial services industry, changes in the capital requirements to underpin the risk taken by financial institutions are just a few of them.

If we want financial markets to take responsibility for societal needs, we need to give them the means to do so. A specific legal status that naturally requires the company to formulate its social mission and make its value creation dependent on both the financial performance as well as its social performance could be a sizeable step towards a new financial market logic that serves the sustainability of society.

Another approach calls for increased transparency in financial markets forcing actors to take responsibility for their business and investment approaches. Numerous rating models and investment indices reflecting environmental and social responsibility criteria have emerged in the recent years. Transparency is also at the base of a third approach that seeks to equip financial markets with new means to take into account non-financial dimensions in their behaviour. Whilst it is true that financial markets have shown little interest in recognising their social responsibility except when forced through the imposed integration of externalities, it is equally true that the regulatory environment has so far left little margin to financial markets for integrating social aspects into their decision processes: not only have forfinancial-return investors considered any social dimension in their investment approach a sacrifice at the expense of financial return; social-impact-oriented investors have equally always considered the pursuit of financial return non-compatible with any socially-minded attitude in conducting business. The legislator and regulators of financial markets have supported this divide by reserving the support to community-interest-focused activities to non-for-profit organisations.

Obviously, it is easy to succumb to the conclusion that such new structure requires governance rules, impact metrics, business ethics, monitoring and supervision that remain to be developed, are untested and therefore may fail. However, are we really certain we can forego such opportunity of changing financial market logic for not repeating the recent past, just because of a potential imperfection of its starting point or because we are afraid of the abuse of such new structure? There hasn’t been a law on this planet that hasn’t been defied by criminal behaviour in pursuit of personal interest. It will be no different with a law that opens access to mainstream financial markets for social businesses. But we haven’t declared asset management a blacklisted activity because of the Madoff scandal, have we? So, let’s take a tiny risk here and see if we can’t “abuse” of the laws of capitalism for creating social value rather than procrastinating in market concepts that have not worked out in the past.

In the light of unsustainable value creation models in the financial markets from the past and a growing spectrum of social challenges that can no longer be met by philanthropic activities, rethinking this dividing line is unavoidable.

Luxembourg bringing such structure to life as first financial centre globally may show avenues for reinvigorating a financial services industry that, around the globe, is short of new selling propositions to an ever more demanding audience of socially- and environmentally aware customers.

As part of these market developments Luxembourg has started an initiative for creating a dedicated corporate structure for socialimpact oriented businesses. The particularity of the contemplated legal form is its ambition to combine for-financial-profit shareholders and social-impact-oriented shareholders in the capital base of the same company.

Ulrich Grabenwarter, European Investment Fund 2


N°9 - June 2013

Regulation and Microfinance – Opportunity or Burden? Forms of MFIs MFIs are currently operating in the form of non-governmental organizations (“NGOs”), credit unions and other financial cooperatives, and state-owned development and postal savings banks. An increasing number of MFIs are organized as for-profit entities, often because it is a prerequisite to obtaining a license from banking authorities to offer financial services. However, forprofit MFIs may also be organized as non-bank financial institutions, commercial banks that specialize in microfinance, or microfinance departments of full-service banks. The financial needs of MFIs are therefore somewhat dependent on their size and form.

Access to financial services empowers the poor to increase their standard of living. Micro-loans for example provide the entrepreneurial poor with a source of capital which allows them to establish, or expand, business or trade and protect against risks in a manner which creates wealth. However, microfinance does not only consist of providing micro-loans. Many microfinance institutions (“MFIs”) also take deposits. Thereby they are fulfilling the role of banks in areas where traditional commercial banks are either non-existent or not accessible to the poorest individuals or families. Whereas it can easily be argued that overseeing those banking activities is very important in protecting the belongings of the poor and poorest, increased regulation and legal requirements imposed on such financial institutions may push these entities to withdraw their services, leaving a banking desert behind them. The direct consequence of this would be that the beneficiaries of micro-depository services would have to revert to more risky ways of storing their money making them prone to loss, or else deposit it with alternative depositaries at a higher cost. Therefore, microdepository services should be treated differently from consumer banking.

Microfinance Investment Vehicles – the fuel for MFIs Whereas a significant part of MFI get funding from governments and not for profit organizations, profit seeking investors, both individual and institutional, have recognized the value of investing in microfinance. Therefore microfinance has moved away from purely public funding and given birth to a significant number of privatepublic, as well as purely private undertakings known as microfinance investment vehicles (“MIVs”).

Prudential and non-prudential regulation Many of the regulatory concerns which are relevant to any financial institution apply in the field of microfinance and it is therefore instructive to consider the types of regulation which generally apply to credit institutions, and more particularly those institutions which deal with individuals. Prudential regulation seeks to protect the soundness, financial health and stability of the financial system, and ensures that financial institutions behave without taking excessive risks that could affect their stability. Prudential regulation includes rules on reporting, as well as capital adequacy and liquidity requirements.

Structuring MIVs in Luxembourg Luxembourg offers a wide variety of structures for microfinance funds. Whereas there is no specific structure for these funds, the majority of them are structured as securitization vehicles, specialized investment funds, investment companies in risk capital or non-UCITS investment funds. This broad range of available vehicles, along with a long standing expertise from the local regulator and the legal services and financial industries, makes Luxembourg the location of choice for microfinance funds. Indeed, Luxembourg provides a flexible framework with a strict oversight of the fund industry, thus reassuring both investors and the beneficiaries of MIVs.

Whilst deposit-taking institutions should be (and, in the vast majority of jurisdictions, are) subject to prudential regulation to make sure that customer deposits are protected, it is generally considered that it would be too burdensome for non-deposit taking MFIs (i.e. credit-only MFIs) to comply with prudential rules. In many countries it is not necessary to be prudentially regulated to lend money, although often regimes intended to protect consumers from mis-selling, abusive lending practices, etc. apply. Credit-only MFIs should be subject to non-prudential regulation, which seeks to promote good behaviour in the financial system, and includes rules on consumer protection, information disclosure, fair business practices, prevention of fraud and financial crimes and implementation of credit bureaux. Non-prudential rules allow credit-only MFIs to evolve within a structure of regulatory requirements and guidelines that allow them to exist sustainably whilst protecting the interests of vulnerable customers.

AIFMD Due to the form chosen by most MIVs, such vehicles will be qualified as alternative investment funds (“AIF”) within the meaning of Directive 2011/61 on alternative investment fund managers (“AIFMD”). With the implementation of the AIFMD by Member States on 22 July 2013, European AIF managed by European AIFMs will benefit from a passporting regime as it is already the case for UCITS. This reform, albeit imposing stricter regulation on alternative investment funds, represents a great opportunity for entities managing MIVs that chose or will choose Luxembourg as domicile. Not only will they benefit from Luxembourg’s experience as regards the setting up and marketing of funds, but also from the memorandums of understanding (“MoU”) Luxembourg has already signed with multiple jurisdictions outside the EU. Such MoU are a prerequisite for non-EU fund managers that want to manage or market AIFs in the EU and to EU fund managers that want to manage or market AIFs in third countries.

Within the European Union, the question has been raised whether microcredit providers should be subject to banking rules. In a report from December 2012 on the application of directive 2006/48/EC to microcredit1, the Commission states that whereas prudential regulation does have an impact on microcredit activities, prudential factors do not play a critical factor in the development of microcredit, making any prudential reforms not necessary. However, the Commission does encourage the voluntary adherence to codes of conduct, whether established by the microcredit industry or the European Commission2.

1 Report from the Commission to the European Parliament and the Council on the application of Directive 2006/48/EC to microcredit COM/2012/0769 final 2 In October 2011, the European Commission issued a comprehensive European Code of Good Conduct for Microcredit Provision developed jointly with individual

microcredit providers, banks and their respective national and European trade bodies, regulators, academics, and rating agencies.

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N°9 - June 2013

Exemptions under AIFMD However, not all AIF managers will be subject to the AIFMD. A number of exemptions are foreseen for entities such as securitization vehicles, unregulated vehicles, supranational institutions and public interest institutions. Further, due to their small size, AIFMs that manage portfolios of AIFs whose assets under management in total do not exceed a threshold of EUR 100 million of leveraged or EUR 500 million of unleveraged funds will benefit from a lighter regime, unless they decide to opt in under AIFMD. On the downside, the European passport will not will available for such exempted entities.

AIFMD. Whereas the Regulation does not specifically address MIVs, it is likely that such vehicles, if they comply with the requirements of the regulation will be encompassed. EuSEF will thus provide a welcome alternative to AIFMD, especially for small MIV managers for which full AIFMD compliance would be difficult to achieve and which would need to opt out of the AIFMD regime and its benefits. EuSEF, just like AIFMD provides a EU-wide passporting regime for compliant social fund managers, thus making marketing possible throughout the EU. In addition, AIFM can cumulate AIFMD and EuSEF regimes. These new frameworks undoubtedly represent an opportunity for MIVs and the MFIs they support, as well as a way for Europe to become the domicile of choice for responsible investing.

EuSEF Regulation3 - an alternative? On 17 April 2013 the EuSEF Regulation has been published. This regulation which is directly applicable in Member States of the European Union will enter into force on 22 July 2013, parallel to the

Joelle Hauser, Clifford Chance

3 Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds

Networking activities LuxFLAG actively participated in meetings of the Luxembourg Rountable on Microfinance held in Luxembourg during 2012-13. Daniel Dax, General Manager of LuxFLAG took part in a panel discussion on ‘Microfinance Investments –a way forward’ “at the European Microfinance week held in Luxembourg in November 2012

9th GLOBAL MICROFINANCE FORUM , VIENNA

Sachin Vankalas, Operations officer of LuxFLAG took part in a panel discussion on ‘transparency in the microfinance sector’ at the Global Microfinance Forum held in Vienna in March 2013 LuxFLAG was pleased to join hands with ALFI in organising the Annual Responsible Investing Conference held in Luxembourg in May 2013. Sachin Vankalas, Operations Officer of LuxFLAG was invited to participate in a plenary session on ‘Charting new waters – what’s next in microfinance’ at the 15th annual conference of the Microfinance Center for eastern Europe and central Asia in May 2013. Sachin Vankalas, Operations Officer of LuxFLAG was invited to participate in a panel on ‘the Female Economic Factor: How Women’s Access to Savings and Loans Fosters Development and Growth’ at the Global media forum organized by Deutsche Welle in June 2013.

This newsletter is sponsored by International law firm Clifford Chance combines the highest global standards with local expertise. Leading lawyers from different backgrounds and nationalities come together as one firm, offering unrivalled depth of legal resources across the key markets of Africa, the Americas, Asia Pacific, Europe and the Middle East. In Luxembourg, a team of over 80 lawyers advise both international and Luxembourg-based clients, including financial institutions, business enterprises and state and regulatory bodies, on a wide range of matters. Our Luxembourg Funds group’s focused commitment to the funds industry puts us at the forefront of the development of cutting edge products and market trends, which in turn results in us providing a value enhancing service to our clients.

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© ADA

Microfinance

Ensuring peace of mind for investors

N°9 - June 2013

Labelled Microfinance Funds as of June 2013 Name of the MIV

Legal form

Domicile

Labelled since

Access Africa Fund

LLC

USA

May 2012

SICAR

LU

Oct 2010

SICAV-SIF

LU

Dec 2011

Capital Gestion Microfinance Fund

SICAV Part II

LU

Oct 2012

Dexia Micro-Credit Fund- Blue Orchard Debt sub-fund

SICAV Part II

LU

Feb 2007

Dual Return Fund-Vision Microfinance

SICAV Part II

LU

Oct 2008

Dual Return Fund - Vision Microfinance Local Currency

SICAV Part II

LU

Oct 2011

Etimos Fund – Global Microfinance Debt

SICAV-SIF

LU

Oct 2011

Finethic Microfinance SCA

SICAV-SIF

LU

Oct 2010

Fonds Européen de Financement Solidaire (FEFISOL), S.A.

SICAV SIF

LU

May 2012

KCD Mikrofinanzfonds I

SICAV-SIF

LU

Oct 2010

KCD Mikrofinanzfonds II

SICAV-SIF

LU

Oct 2010

SICAV Part II

LU

May 2011

Microfinance Enhancement Facility SA,

SICAV-SIF

LU

Oct 2011

Regional MSME Investment Fund for Sub-Saharan Africa SA,

SICAV-SIF

LU

May 2011

responsAbility Global Microfinance Fund

FCP Part II

LU

Feb 2007

responsAbility Financial Inclusion Fund

SICAV Part II

LU

Dec 2011

responsAbility – Mikrofinanz-Fonds

SICAV Part II

LU

May 2008

responsAbility – Microfinance Leaders

SICAV Part II

LU

May 2008

Rural Impulse Fund S.A.

SICAV-SIF

LU

May 2008

Rural Impulse Fund II S.A.

SICAV-SIF

LU

May 2011

Selectum - BL Microfinance

SICAV-SIF

LU

May 2011

The European Fund for Southeast Europe SA,

SICAV-SIF

LU

Feb 2007

SICAV Part II

LU

Oct 2010

FCP Part II

LU

Oct 2010

Advans SA Azure Global Microfinance Fund

Luxembourg Microfinance and Development Fund

Triodos Microfinance Fund Wallberg Global Microfinance Fund 5


microfinance label for second time. Azure N°9 - June 2013

Global Microfinance Fund is the first fund of funds managed by professionals who came from the Microfinance industry.

It is an ideal investment solution to increase exposure to a growing asset class, as it Azure Global Fund – afirst fund of funddiversification in Microfinance combines an activeMicrofinance portfolio management, large geographical with vast receives LuxFLAG for second time funds: smaller social impact.the It gives access microfinance to a wide range label of microfinance investment innovative funds, regional funds and secondary market opportunities. Azure Global Microfinance Fund is the first fund of funds managed by professionals who came from the Microfinance industry. It is an It ideal investment increase to a growing asset class, achieving as it combinesa an active portfoliosocial management, selects thesolution best tofunds inexposure the microfinance field, meaningful and aa large credible geographical diversification with vast social impact. It gives access to a wide range of microfinance investment funds: smaller innovative funds, regional funds and secondary market opportunities. financial return, offering a monthly liquidity. The fund invests 65% of its assets in Debt Funds lending

money microfinance institutions, 25% in Private Equity and 10% in cash. It selects the bestto funds in the microfinance field, achieving a meaningful social and a funds, credible financial return, offering a monthly liquidity. The fund invests 65% of its assets in Debt Funds lending money to microfinance institutions, 25% in Private Equity funds, and 10% in cash. The Case for Microfinance Investments The Case for Microfinance Investments

Fast growing markets

Stable return and low volatility

Decorrelated investments

Vast social impact

Composition of LuxFLAG Microfinance Label Eligibility Committee

Mickael Tabart KPMG

Christine Gregoire European Fund Administration

Benjamin Mackay ADA

Call for applications LuxFLAG invites application for the LuxFLAG Microfinance Label around the year. The next application dates are as follows: Submission of application along with the documents

12 August 2013

Meeting of the LuxFLAG Microfinance Label Eligibility Committee

12 September 2013

Meeting of the Board of Directors

27 September 2013

Final decision on the labels

27 September 2013

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© B. Marmann

Environment

Ensuring peace of mind for investors

N°9 - June 2013

Labelled Environmental Funds as of June 2013 Name of the EIV

Legal form

Domicile

Labelled since

BNP Paribas Aqua

SICAV SIF

LU

Dec 2012

FCP

FR

April 2013

SICAV

LU

June 2013

Green for Growth Fund, Southeast Europe SA,

SICAV-SIF

LU

Dec 2011

Living Planet Fund – Global Environment

FCP Part I

LU

Oct 2012

Lux-Equity Eco Global

SICAV Part I

LU

Dec 2011

Parvest Environmental Opportunities – SICAV

SICAV Part I

LU

Dec 2011

Parvest Global Environment – SICAV

SICAV Part I

LU

Oct 2012

BNPP L1 Equity World Aqua Global Energy Efficiency and Renewable Energy Fund

FTSE Environmental Markets Commentary According to UN figures, the world’s population breached seven billion in late 2011. Rising numbers along with affluence and mounting levels of consumption are escalating concerns about natural resource scarcity, pollution, energy security and climate change. Industry and investors worldwide are increasingly facing up to the need to develop resources in a sustainable way and new industrial sectors are emerging to meet these needs. Through investing in the companies that are providing the products and services to address these environmental challenges investors are able to gain exposure to a slowly unfolding, cleaner, more environmentally efficient economy.

Management and Technologies, Pollution Control and Environmental Support Services. This data is then used to calculate a series of sector and geographic benchmarks. Luxflag has also helped provide standards to guide investors at a fund level through the new “Environment” label which is given to pooled funds that must demonstrate that their underlying portfolio of investments meet a threshold of environmental markets activity; ie that they are delivering environmental solutions. This label gives investors confidence in the environmental methodology applied in the creation of these funds.

Although there are now a variety of pooled environmental fund available, the variety of different approaches can make it confusing for retail and institutional investors alike. Even identifying and investing in these companies at a stock level can be surprisingly difficult as traditional industry classification systems do not capture the majority of “environmental market” activities. The FTSE Environmental Markets Classification System aims to provide a solution by classifying companies with a significant level of revenue derived from six environmental sectors: Renewable and Alternative Energy, Energy Efficiency, Water Infrastructure and Technology, Waste

Many market commentators focus on the poor performance of renewable energy companies, which can be seen in the chart below. However strong levels of performance have been achieved by the water, waste and energy efficiency subsectors that have all out-performed global equity markets (as represented by the FTSE Global All Cap index) over this five year period. It is therefore important for investors to consider diversification across different environmental sectors rather than focusing only on one sub-sector such as renewables. 7


N°9 - June 2013

Fig.1 FTSE Environmental Opportunities Sector Indices (five year, total return, USD)

It is increasingly easy to invest according to environmentally sustainable principles with the variety of options now available. There are also new standards, labels, indices and classification systems to help guide these investments, but most importantly due to the environment challenges facing the world there are strong economic opportunities for companies that focus on delivering solutions.

Globally, the market outlook for 2013 looks positive for the environmentally-aware investment, with President Barack Obama vowing to fight climate change and expected to focus on energy efficiency. In California legislation has been passed which will boost energy efficiency and clean energy programmes. In Japan, a government taskforce announced plans to improve energy efficiency by installing home energy management systems in all homes by 2030. Other countries are likely to adopt similar energy saving measures.

Tony Campos, FTSE

GEEREF – first fund of fund to receive LuxFLAG Environment Label GEEREF is an innovative fund of funds, providing global risk capital through private investment for energy efficiency and renewable energy projects in developing countries and economies in transition.

developers and small and medium-sized enterprises (SMEs). The fund focuses on projects below €10 million, providing valuable investments and filling a substantial gap in the market. Only projects that meet strict investment criteria can qualify for GEEREF funding.

GEEREF aims to accelerate the transfer, development, use and enforcement of environmentally sound technologies for the world’s poorer regions, helping to bring secure, clean and affordable energy to local people.

Project examples: Renewable Energy Asia Fund (REAF) targets Asia (primarily India) where there are tremendous opportunities for renewable energy investment. The Fund specifically focuses on operationally and economically mature technologies which are best placed to help Asia bridge its current electricity supply/demand gap (primarily with wind, small hydro and solar energy). REAF is managed by Berkeley Energy, which is a private equity fund manager specializing in renewable energy infrastructure investments in developing markets with initial focus on Asia. Berkeley Energy seeks to make equity investments into renewable energy projects and project developers, mature and consolidate these investments into operating portfolios and generate superior returns through successful exits.

GEEREF is both a sustainable development tool and support for global efforts to combat climate change. It is sponsored by the EC, Germany and Norway with support from the European Investment Bank (EIB) and the European Investment Fund (EIF). GEEREF is a European Commission project sponsored by the Directorate General for Environment and Directorate General for Europe Aid Co‑operation (AIDCo). Within the pre-defined technological and geographical scope, GEEREF supports renewable energy and energy efficiency project 8


N째9 - June 2013

The Evolution One Fund is managed by Inspired Evolution Investment Management (Inspired Evolution), a private equity fund management company. Inspired Evolution Investment Management is positioned to lead cleantech investments in southern Africa taking first mover advantage in emerging clean technology and environmental markets. Inspired Evolution Investment Management has first mover advantage to lead cleantech investing in emerging markets in southern Africa. Inspired Evolution offers progressive investors and enterprises profitable and ethical returns where people and the environment matter. www.geeref.com

Call for applications LuxFLAG invites application for the LuxFLAG Environment Label around the year. The next application dates are as follows: Submission of application along with the documents

09 August 2013

Meeting of the LuxFLAG Environment Label Eligibility Committee

10 September 2013

Meeting of the Board of Directors

27 September 2013

Final decision on the labels

27 September 2013

Benefits of Associate Membership of LuxFLAG

Network across continents : Communicate, collaborate & connect with fellow members.

Access to accurate market data

Represent LuxFLAG in international conferences.

LuxFLAG Associate Members

9

Possibility of partnership/ sponsoring at different events in Microfinance and Responsible Investing.

Direct access to internationally well known experts in the field of Microfinance and Responsible Investing.


N째9 - June 2013

Associate Members Associate Members Associate Members Associate Members Associate Members Associate AssociateMembers Members

Associate Members Associate Members

Check your carbon footprint 10


N°9 - June 2013

© LuxFLAG

Information Technology Solutions LuxFLAG

Associate Membership Application Form*

__________________________________________________________

Name of the entity

__________________________________________________________ * Please send this form to

Address

LuxFLAG (together with a copy

__________________________________________________________

of your latest Annual Report),

Web-site

to the following address:

__________________________________________________________

Luxembourg Fund Labelling

Number of employees

Agency (LuxFLAG)

__________________________________________________________

12, Rue Erasme L-1468 Luxembourg-Kirchberg Mail address: B.P.206 L-2012 Luxembourg

To contact us: Luxembourg Fund Labelling Agency (LuxFLAG) 12, Rue Erasme L-1468 Luxembourg-Kirchberg Tel: +352 22 30 26 - 1 Fax: +352 22 30 93 E-mail: info@luxflag.org Web-site: www.luxflag.org

Nature of the business (max. 135 characters incl. spaces)

__________________________________________________________ Activity or interest in the purpose of LuxFLAG

I/We therefore declare that: I/we want to apply for Associate Membership of LuxFLAG; I/we read the Statutes of the Association, and accept and agree to be bound thereby; I/we are qualified for Associate Membership under the Statutes of the Association; I/we allow LuxFLAG to place a link on its website to the website of my/our entity; I/we agree to pay its dues. Request submitted by:

_______________________________ __________________________ Name - Position

Signature

_______________________________ __________________________ Name - Position

Signature

_______________________________ Place - Date

Contact person:

________________

_______________

________________

_______________

Name

Phone

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E-mail

Fax


N°9 - June 2013

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N°6 - November 2011

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N°8 - November 2012

Dear Reader,

Dear Reader,

Dear Friends of LuxFLAG,

In this edition of our Newsletter, we are pleased to announce that that we have received several new applications for the LuxFLAG Microfinance Label.

This edition of LuxFLAG’s newsletter reflects the massive growth we have seen in recent years of investor interest in Sustainable and Responsible Investment. It includes articles addressing not only LuxFLAG’s existing labelled activities of Microfinance and the Environment, but also some of the developments and challenges of Impact Finance and Social Performance Management. In our lead article Finance Minister Luc Frieden points towards the exciting developments he foresees in the world of sustainable finance and the very practical measures which the Luxembourg government is taking to support these.

It is a great pleasure for me, as your new Chairman, to address Members and Friends of LuxFLAG, in this first newsletter since the new Board was elected at the June 29th Annual General Meeting.

Over the last twelve months, LuxFLAG has experienced a substantial increase in the number of Microfinance Labels that have been granted to Microfinance Investment Vehicles (MIVs). Indeed, four new Microfinance Labels were granted in the month of September 2011 alone. To date, in 2011, LuxFLAG has granted 7 new Microfinance Labels and renewed 13 Microfinance Labels. The number of MIVs labelled by LuxFLAG has more than doubled from 8 at the beginning of 2010 to the present number of 20, which currently represent approximately USD 2.9 billion in Assets Under Management.

Stability and credibility were important objectives for us in the relatively young, diversified and rapidly changing field of Responsible Investing. Given the current well-established position of LuxFLAG labels, and increasing investor interest in the sector, LuxFLAG now has the opportunity to focus on growth. LuxFLAG is an exciting place and is well positioned to support the current trend in «Responsible Investing». The Agency has a significant role to play in the labelling of qualifying responsible investment funds. In this regard, I am pleased that both the Luxembourg Government and the Financial Centre are aligned around a strategy to foster the development of Responsible Investing. Through the efforts of the Charter Members, the Associate Members and the Secretariat, LuxFLAG, will work assiduously to advance this strategy over the coming months and years.

LuxFLAG is itself at an exciting phase of its development, and is well placed to play a key role in the growth of this investment sector. LuxFLAG’s early focus has been on the creation of a solid reputation and image for its labels. Stability and credibility have been important objectives in the relatively young, diversified and rapidly changing field of Sustainable and Responsible Investment. Based on its now well-established position, the opportunity is there for LuxFLAG to focus on growth. The Board of Directors has completed a review of its strategic plan for the next three years. LuxFLAG plans to build on its strengths, namely its Charter Members and its powerful network of Associate Members, to grow not only the number of qualifying Investment Vehicles to whom its Microfinance and Environment labels are granted, but also to extend the range of its labels in the wider field of Sustainable and Responsible Investment.

One contribution in this newsletter on a newly-labelled fund gives some insight into how lending in local currencies may help to reduce unwanted exposure to exchange rate risk. The Alternative Investment Fund Managers Directive and its implications on MIVs, as well as the European Commission’s consultation paper entitled the Social Business Initiative: Promoting Social Investment Funds are two more topics covered in this Newsletter. Since the launch of the LuxFLAG Environment Label, which is available to both Luxembourg and foreign investment funds that demonstrate compliance with the Label’s Eligibility Criteria, LuxFLAG has been working on promoting the new Label. The time table for the first labeling process has been fixed, and additional information can be found in this edition of the Newsletter. The first applications for the LuxFLAG Environment Label will be reviewed by the new Environment Label Eligibility Committee in a few weeks’ time. The latest date for completed applications to be received is 15th November. A recent a study commissioned by EIRIS on the perception of SRI by French investors has shown that a large majority of investors attach great importance to environmental and social criteria in their investment decisions. The views of the ALFI Chairman on the Association’s ambitions and objectives with regard to sustainable finance provide the keynote contribution in this Newsletter.

Since the renewal of the Agency’s governance, the LuxFLAG Board of Directors has been working hard to prepare LuxFLAG labelling activities for an ambitious phase in its development. In a nutshell, we plan to expand the benefits of existing labels in Microfinance and Environmental activities. In addition, new labels will emerge, allowing LuxFLAG to cover other sectors of Responsible Investing. We will also improve our visibility among the European Institutions and stakeholders as an independent, international labelling agency. Finally, we will take steps to improve our internal efficiency and effectiveness, ensuring we have the resources to support our growth strategy.

As this newsletter goes to press, my mandate as Chairman of the Board comes to an end, and some of my fellow directors are also stepping down at this time. I therefore take this opportunity to thank all of the directors, and the many others who have contributed towards the establishment and growth of LuxFLAG up to now, and wish the new Chairman and the Board every success for the future.

These efforts, in deepening and broadening the LuxFLAG activities, are driven by our core values of responsibility, sustainability, independence and transparency.

I also particularly wish to thank LuxFLAG’s Honorary President, HRH Grand Duchess Maria Teresa for her continuing support, which was visible to many this year through her attendance and presentation at the recent Responsible Investment conference organised by ALFI in cooperation with LuxFLAG.

Enjoy reading this 8th edition of the LuxFLAG newsletter.

We are convinced that LuxFLAG Labels support responsible investing through clarity, transparency and quality.

Kenneth Hay, Chairman, LuxFLAG

Finally, I would like to sincerely thank Linklaters who have kindly sponsored this 6th edition of the LuxFLAG Newsletter.

LuxFLAG labelled MIVs’ Corner Labelled MIV Factsheet ......................................................................... 6

Editorial ........................................................................................................ 1 Key note article Interview with the Chairman of ALFI Mr. Marc Saluzzi ............. 2

Update on LUMINIS ................................................................................ 7 Associate membership of LuxFLAG .................................................. 7 Communication and networking activities ................................... 8

LuxFLAG Microfinance Label Contributions from Associate Members ...................................... 3-5 KPMG Linklaters

LuxFLAG Environment Label Update on the LuxFLAG Environment Label Environment section of our website

Innovations in Microfinance: Local Currency Funding for Microfinance Institutions ........................................................................ 5

This newsletter is sponsored by

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Daniel Dax, General Manager, LuxFLAG

Key note article Sustainable finance: a key ingredient for the future success of the world of finance: Luc Frieden, Minister of Finance ........ 2 About the sponsor .................................................................................. 3

Communication and networking activities ................................... 9 Call for associate membership ........................................................... 9

LuxFLAG Microfinance Label Principles for Investors in Inclusive Finance – encouraging transparency ............................................................................................. 3 Current trends in microfinance, a rater’s perspective ................ 4 Associate members contribution .................................................. 4-7 Responsible Investments – opportunities and challenges by KPMG ......................................................................... 4

LuxFLAG Environment Label EIV Factsheet .......................................................................................... 10 Environmental markets : Article from Eric Borremans ........... 10 International financial institutions and environmental funds: article from Gijs Nolet ......................................................................... 11 Call for applications for the Env. Lab ............................................ 12

This newsletter is sponsored by 1

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Trends in Impact Finance from Corinne Feypel-Molitor ...... 6 Update from Luminis ........................................................................ 7 Call for applications for the MF. Label ............................................. 7 MIV Factsheet ........................................................................................... 8

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I hope you enjoy reading the 6th edition of the LuxFLAG Newsletter.

Key note article LuxFLAG and Sustainable Development: Minister Claude Wiseler, Ministry of Sustainable Development and Infrastructure ................................ About the sponsor .................................................................................... Meeting the challenges of the evolving economic, legal and regulatory environments for impact investing. Marc Elvinger/Frédérique Lifrange/Céline Wilmet ....................... Sustainability: walking the talk - Can Luxembourg give substance to its new war cry? – Eleanor Derosmorduc, Luxembourg for Finance ........................................................................ Communication and networking activities .....................................

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LuxFLAG Environment Label LuxFLAG Labelled EIVs ............................................................................ 9 The Environment: Threat or Opportunity ........................................ 9 How do companies do business in a carbon constrained world? ......................................................... 10 Call for applications for the Environment Label .......................... 11 Power for 3000 households – a LuxFLAG Labelled EIV - GGF case story ................................................................................ 12 Composition of the Environment Label Eligibility Committee ................................................................................................. 12

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LuxFLAG Microfinance Label LuxFLAG Labelled MIVs ........................................................................... 5 Rural microfinance: high social return and commercial viability .................................... 6

This newsletter is sponsored by 1

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Thomas Seale, Chairman of LuxFLAG

The State of Microfinance Investment 2012 ................................... Microloans in Kenya – a LuxFLAG Labelled MIV - AAF case story ................................................................................ Composition of the Microfinance Label Eligibility Committee . Call for applications for the Microfinance Label ............................ Call for Associate Membership .............................................................

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Sponsorship opportunity for LuxFLAG newsletters The LuxFLAG newsletter is an bi-annual publication of LuxFLAG which is sent to over 10000 contacts in the fund industry. LuxFLAG offers an opportunity to enhance the visibility for your organization through a logo and corporate profile in the LuxFLAG newsletter. Please contact LuxFLAG for further details.

Luxembourg Fund Labelling Agency (LuxFLAG) 12, Rue Erasme I L-1468 Luxembourg Daniel Dax, General Manager I daniel.dax@luxflag.org Sachin S Vankalas, Operations Officer I sachin.vankalas@luxflag.org Tel: +352 22 30 26 1 I Fax: +352 22 30 93 www.luxflag.org

This publication may not be reproduced, either in full or in part, without the prior permission of LuxFLAG. Thank you for contacting us at: info@luxflag.org All articles in this newsletter are published under the sole responsibility of their authors. Opinions expressed do not necessarily reflect the official position of LuxFLAG or its directors.

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