On Friday 17 October 2025, the Luxembourg Finance Labelling Agency (LuxFLAG) announced the launch of its new "Transition Label", designed to recognise and support financial products that credibly contribute to the shift toward a low-carbon and more sustainable economy.

According to LuxFLAG, the Transition Label responds to a growing need in the sustainable investment ecosystem: enabling the financing of strategies that are aligned with science-based transition pathways but may not yet fully meet the strict thresholds of green, climate or impact classifications. It acknowledges the reality that in certain sectors or geographies, immediate alignment with climate, environmental or social objectives is not yet feasible - but progress is both essential and underway, the agency added.

LuxFLAG noted that the Transition Label complements its streamlined label structure, announced recently. This structure simplified the agency's offering from eight labels into three distinctive categories: Impact Label - certified by LuxFLAG; ESG Label - certified by LuxFLAG; Transition Label - certified by LuxFLAG.

Together, these categories are expected to strengthen LuxFLAG's position as a global labelling agency, offering investors, asset managers and other financial actors a "clearer, more intuitive and internationally relevant" label framework.

According to LuxFLAG, the Transition Label sets clear requirements to ensure credibility, transparency and accountability:

  • Focus on transition-related investments: more than 50% of the applicant’s investments must be in strategies contributing to climate, environmental or social transition. These can include: investments in portfolios aligned with EU Climate Transition Benchmarks (CTB) and Paris-Aligned Benchmarks (PAB); investments in taxonomy-aligned economic activities; investments in undertakings with credible transition plans or science-based targets, backed by transparent and verifiable information; investments in undertakings disclosing material impacts and actions under ESRS S1–S4 or aligned with the draft EU Social Taxonomy;
  • Stewardship and engagement requirements: applicants must demonstrate active stewardship, either through direct engagement with issuers (minimum 20% portfolio contribution) or collective engagement through platforms (minimum 50%);
  • High sustainability risk sectors: for investments in sectors such as thermal coal, oil and gas, and high-emission power generation (>100 g CO2e/kWh), both a credible transition plan and stewardship are mandatory.

By introducing the Transition Label, LuxFLAG said it was strengthening its mission to promote trust, transparency and impact in sustainable finance. This label fills "a critical gap" in the current EU labelling ecosystem by providing recognition for financial products that are credibly on a decarbonisation or social transition trajectory. The agency added that it also incentivises continuous improvement by requiring adherence to international standards, robust reporting and accountability.

"The Transition Label reflects our pragmatic approach to sustainable finance. It supports investors and asset managers in identifying credible transition strategies, while ensuring integrity, transparency and impact. With this new label, LuxFLAG helps channel capital toward the real-world transformation our economies urgently need,” said Isabelle Delas, CEO of LuxFLAG.