France has overhauled its SRI fund label in a move that will “give investors and individual savers even more confidence”, according to Michèle Pappalardo.
Pappalardo, a member of the supervisory board of Caisse des Dépôts, is the chair of the advisory body responsible for steering the evolution of the label. The latest revision has been underway for around two years and was officially adopted this month by the French government.
Pappalardo described it as “clearer and more demanding” than its predecessor.
The label, which is aimed at retail investors but is also used by some asset owners in the country, can now only be secured by funds that have no exposure to companies developing new fossil fuel assets.
Grégoire Cousté, executive director of the French sustainable investment forum FIR, said: “That’s a good thing, because – while we support engagement with these companies at institutional level – retail investors generally want to be sure they’re not investing in the fossil fuel industry.”
Overall, Cousté welcomed the updates, which also include mandatory exclusions for tobacco companies and those registered in certain tax havens.
Under the previous SRI label, funds were required to have screened out at least 20% of their starting universe in order to demonstrate they were supporting ‘best in class’ companies within each sector. This remains a problematic rule for thematic funds, which target specific business types in order to achieve impact, but it has been strengthened under the revisions, and now sits at 30%.
A proportion of companies within the fund must also have climate transition plans in place. Initially, that proportion is 15%, but the threshold will rise as the practice gains traction.
Funds must also have clearer corporate engagement processes in place, including escalation pathways.
“So it’s more demanding when it comes to the basic exclusions, the selection of stocks, and the way managers should engage with those companies over the longer term,” said Cousté.
The French label is notably different from the regime launched by the UK’s Financial Conduct Authority earlier this month, which identifies four ways in which funds can secure a label. France has retained a single label for all SRI funds.
The updates will come into play for new funds in France in March, and funds that already have label will have until January 2025 to comply with the new requirements.
Cousté said it was unclear how many funds would lose the label as a result of the changes, adding that some managers would choose to adapt their portfolios and policies accordingly, while others may decide not to reapply.