In terms of SRI assets under management, the French market lags way behind the UK where large pension funds have driven growth and legislation is set to add to the momentum. But even in the absence of these drivers France has seen some impressive growth of late.
At the end of June mutual SRI funds distributed in France represented some E4.9bn, a year on year increase of 75%, according to Paris-based SRI consultancy Novethic, a subsidiary of Caisse des Dépôts. A survey undertaken by Novethic in the same month showed that retail clients accounted for around 60%. Retail part consists mainly of French citizens; the institutional side is made up of French banks and banks with joint French-foreign participation, although most of their clients are foreign.
Meanwhile SRI assets under dedicated management in France accounted for a further E3.7bn. “What is interesting and surprising is that the French market represents an even less significant proportion of this than it does of the mutual fund assets,” says Jean-Pierre Sicard, president of Novethic. “Foreign clients account for 84%. We expected maybe three quarters of clients to be French.”
French investors account for a little less than E4bn of the combined total of mutual and dedicated SRI management. Around 15% of this is attributable to SRI funds managed under employee savings plans.
The leading French players include BNP Paribas, Crédit Lyonnais and Société Générale.
But in a country with a tradition of self-reliance, it is ironic that the encouraging development of the French SRI scene is, to a great extent, due to the influence of France’s neighbours. In terms of institutional demand, Sicard notes that “the growth of SRI offerings in the French market has been created more by foreign clients asking for an SRI product than by French institutions identifying opportunities in France.”
The question of sustainable development is very au courant today in the French parliament and in French society as a whole. And like their counterparts elsewhere, French unions have now taken a position on these questions. Lessons have also been learned from markets like the Netherlands or the UK with more developed SRI infrastructures.
“All of this produces a context which makes French institutions more sensitive to these questions,” says Sicard. “But we must recognise that for now this has not been translated into significant investments.”
Why? In some respects the banks, which have been involved in this market for some years, have not done well at promoting SRI. Sicard says: “Until last year, if you went to your financial adviser saying that you have heard about ethical investments he would have said ‘oh la la, that’s a bit too complicated.’”
Some players have shown more engagement and imagination. “BNP Paribas has taken an interesting approach by simplifying the offering, transforming an existing long-term retirement savings vehicle into an SRI product,” he says. “They have understood that if there is too much specificity the product will only interest a niche of clients.”
He adds: “French institutional clients need to be convinced that SRI products are interesting for financial reasons as part of a new approach of asset management.”
Could the government do something to stimulate the market? “Yes, we could have the same type of transparency obligation in France,” notes Sicard, “but the market is much smaller and more diffuse and an equivalent project has not started yet. It is a fact that the absence of the pension funds with their need to place money long term is a brake on the development of SRI.”
However, the demands the authorities have made of the new Fond de Reserve de Retraites (FRR) may well encourage the market to develop. The FRR is being encouraged to incorporate SRI criteria in its approach and has also been asked to communicate what it is doing in respect of SRI.
“The impact of the SRI requirement at FRR is significant,” stresses Sicard. “The amount, some E3bn, is very large by French market standards. This will encourage experimentation on SRI practices by other institutions.”
And we have reason to be more confident in the system now. Sicard: “At the beginning we had doubts about the capacity of French asset managers to discriminate the companies on these criteria. They might bluff and put any old company in. Now they are more credible.”
Another issue has constrained the development of SRI in France is that most savings contracts have a term of between five and eight years. “For an investment that one makes for the good of the world, a term of 15 years is more appropriate than five or eight,” says Sicard. “But in France there is a lack of this type of long-term savings vehicle.”
But, of course, demand drives supply. So while the challenges are not insignificant, the signs are encouraging.