France publishes methodology for new law on ESG/low carbon investment reporting

Following ratification, the details of Article 173 in the energy transition law are outlined.

France’s National Assembly has published the methodology that asset owners, fund managers and insurers will have to use to report information on how they integrate ESG into their investment processes, outline the greenhouse gas (GHG) emissions of their investments and contribute to the financing of a low carbon economy, in one of the world’s most comprehensive shifts to public sustainable finance data.
RI reported in May 2015 that the new reporting requirements, part of France’s energy and ecology transition law, had been formally voted on by the National Assembly before being ratified by the Senate and fully adopted on August 17, 2015: Link
The new publication is the detail that accompanies that law, under clause VI, article 173 in the energy and ecology transition law n° 2015-992.
The text says French investors must describe the content, frequency and means used in their investment or risk management processes in order to inform the public on their ESG objectives. More specifically for asset managers, a list of all the funds managed that account for ESG issues will be required, as well as the percentage of the amount this represents in the asset manager’s overall portfolio. The law says this will enable more public clarity regarding asset manager commitment to ESG. Furthermore, investors will have to inform and summarise any adhesion to an ESG label, code or initiative, with the goal of encouraging such adhesion for all investors.
RI has reported France’s introduction of several green/SRI labels in recent months. The latest, signed off on December 10, 2015 by Manuel Valls, French Prime Minister, and overseen by Ségolène Royal, the Minister of Ecology, Sustainable Development and Energy, is a new certification label for investment funds that are deemed to be promoting the clean energy transition: Link
Michel Sapin, the French Minister of Finance and Public Accounts, also announced last year that the French government would back a new public SRI quality label for investment funds, with the first labels scheduled to be awarded in Q1, 2016, although further information has yet to come out: Link new reporting law states that if an investor does not, or is unable to include ESG in its investment process then they must at least summarise the procedures taken to identify ESG risks and how they could affect their investment activities. Drilling down, the decree allows investors to categorize their activities into asset classes, portfolios, sectors, etc, in order to finesse/explain their compliance with ESG objectives. The reasons for the categorization must be explained.
Asset managers can provide the necessary information for several funds with similar characteristics rather than provide information for each fund individually, as long as they describe the overall investment strategy and how the information will affect risk management or divestment decisions.
On investor engagement, the law says shareholders should publish their policy on the exercising of share voting rights.
The methodology asks investors to be thorough and pertinent with their ESG information to ensure clarity. For example, the decree says that under environmental objectives, the risks associated with climate change should be detailed in the form of financial or extra-financial information stemming from internal or external analysis, and must account for both physical and transitional climate change risks. It requires investors to explain the coherence of their investment spending on low-carbon energy alongside the possible exposure to climate change risks in accordance with international abatement targets, itself the objective of the French energy and ecology transition law.
Investors with assets below €500m will only have to provide a summary of their broad investment or risk management processes.
French ministers Ségolène Royal, Michel Sapin, and Marisol Touraine, minister of social affairs, health and women’s rights, will supervise the implementation of the law and the government will conduct a first assessment of its success before the end of 2018.