France blazes SRI trail with Article 173 disclosure law
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France blazes SRI trail with Article 173 disclosure law

France’s sustainable and responsible investor base is notably more developed than those in many other leading economies. The country’s government is preparing to launch its first green bond. But the biggest change will come as French asset owners implement the new Article 173 law on disclosing their climate exposure, reports Julian Lewis.

A recent survey by Novethic put the French responsible investment market at €750bn of assets in 2015. “The market has increased a lot in volumes, but there is a large variety of approaches and degrees of stringency in processes,” says Dominique Blanc, head of research at Novethic in Paris. 

To clarify this variety, Novethic launched a widely followed SRI labelling scheme in 2009.

Novethic estimates the top tier of French responsible investing, ‘high impact SRI’, at €54bn. The next, ‘significant impact’, totalled €150bn while the largest, ‘limited impact’, stood at €542bn. 

Private investors drove last year’s 20%-30% growth in high impact investing. Their share here is greater than in the overall market. Smaller asset managers also punch above their weight.

In the top tier are just under 30 investment firms, of which 14 have 90% or more of their assets in high impact SRI areas, and account for most of the assets (some €39bn). 

Key managers with over €500m are, from big to smaller, the French arm of Generali, Mirova, Agicam, Ecofi, Federis, La Française Inflection Point and Sycomore.

Fitfy-one percent of high impact assets are bonds and 12% money market products. 

The lower tiers involve environmental, social and governance (ESG) integration – “fund management that keeps traditional financial goals but adds ESG parameters to capture specific opportunities and risks,” Blanc says. Insurance companies are dominant, with several managing more than €50bn responsibly.

An important source of double digit growth in recent years has been asset managers converting existing funds into more responsible investments. One-off conversions have tended to involve softer SRI criteria than progressive transformations, notes Blanc. 

ERAFP, the French public sector additional pension scheme, has been a particular influence. At launch in 2005 it went 100% SRI, and it now has €20bn-plus of assets. 

The giant asset manager Amundi claims to be the market leader, though. It manages about €160bn across Novethic’s three categories and was the first French asset manager to receive Afnor certification.

While private sector insurers such as Axa, Cardif (part of BNP Paribas) and the French arm of Germany’s Allianz have been influential, the mutual assurer MAIF stands out, too. Market players note its proactive stance and combination of dedicated SRI funds and broader ESG products. 

In green bonds, several players praise Humanis, which has run a dedicated fund for some time. Its criteria are quite wide, they report: “It’s a very interesting approach and a very good story,” comments one. 

Mirova, though, is particularly prominent. Although it was not among the first SRI players, it is a dedicated brand for SRI and all its funds qualify for Novethic’s top tier. It has about 12 ESG analysts serving its portfolio managers. Mirova also advises parent Natixis’s other asset management units on ESG issues. Its market influence is underscored by the many green bond issuers who consult it before launching deals. 

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Political lead

“All these funds show the brilliant job France has done with its regulatory push for disclosure,” argues Stephanie Sfakianos, head of sustainable capital markets at BNP Paribas in London.  

The cultural expectation that institutional investors should participate in French society has also played a role, adds Christopher Flensborg, head of climate and sustainable financial solutions at SEB in Stockholm. 

In 2015, France went further than any other country with its Energy Transition Law, whose Article 173 requires asset owners to disclose their ESG parameters and quantify their climate impact. This includes specifying their assets’ carbon footprints and efforts to de-carbonise. 

The legislation will be “quite challenging” for French institutional investors, believes Hans Biemans, head of sustainability, markets at Rabobank in Utrecht. However, the country’s long history in SRI positions them well, he adds.

“The French market is very dynamic,” agrees Blanc. “The law should help it continue to grow.”

The political lead extends beyond Article 173. Green fund labelling and the Trésor’s plan to launch a green government bond add to France’s leadership in greening finance.   

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