France’s AMF regulator reports on ESG SPOT investigations at French fund managers

Move comes as part of tighter sustainable finance supervision.

Five French asset managers running SRI funds or integrating ESG into their investments received an interesting visitor in recent months as the country’s AMF securities regulator sent in a team of investigators to examine their sustainability policy, practices and reporting as part of tighter supervision.
The investigations carried out at five, unnamed French fund managers – called SPOT inspections by the AMF (standing for Supervision des Pratiques Opérationnelle et Thématique – operational and thematic supervision of practices), signal increased oversight of ESG in investment by the French authorities.
The AMF report on its investigation, just published, follows hard on a government review of Article 173 last month, reported by RI. It found that half of France’s 48 biggest financial services companies are falling short of its reporting requirements. The AMF report includes critiques and recommendations for best practice on Article 173 reporting by investors, although it was undertaken before the recent review and is not directly related.
The AMF says it wants to ensure SRI information provided to investors is fair, clear and non-misleading, and compliant with the investment and management process of funds companies. It has taken up sustainable finance as a strategic priority in its “#Supervision2022” initiative and chosen it as one of the first themes of the SPOT inspections, which started in 2018. The AMF also publishes regular reports on SRI in collective management, the third edition of which should be published in autumn 2019.
Since 2011, French asset management companies (AMCs) are required to publish information on how they factor in ESG into their investment policy.
In 2015, France also introduced its law on energy transition for green growth, with clear guidelines on ESG reporting requirements, in particular relating to climate change. The requirements of the law are regularly referred to as ‘Article 173’.In past reports, the AMF has flagged up concerns over shortcomings at fund managers, including out-of-date SRI procedures and lack of precision on methodology, data and operations, which it said made it difficult to ‘trace and justify’ changes to ESG scores and meant information to investors was unclear.
The recent SPOT inspections at the five AMCs examined how each firm is resourcing and organising its SRI investment and risk management procedures, including data used, ESG criteria, assesment of climate risk, rating of issuers, selection and exclusion of securities, and engagement policy. It looked at a sample of 4 to 6 securities in equities funds at each manager to see whether the ex ante and ex post information provided to investors was satisfactory.
The fund managers investigated, it said, ranged in size and were selected because of the SRI management claims in presentations to investors.
The regulator said it was generally happy with compliance at four of them, although it was critical of the quality of documentation on dialogue with issuers and the inclusion of stocks in SRI universes and investment decisions.
Notably, the AMF inspection team found that only one of the fund manager’s reported on its funds’ contribution to compliance with targets for limiting global warming and the energy and ecological transition. It also noted that the portfolios of the funds of three AMCs contain securities whose carbon footprint is high (in the automotive, utilities and chemicals sectors), but said this did not conflict with the SRI policies of the firm.
On corporate governance, it said fund manager reports on voting were not clear to investors on whether a resolution voted on had finally been adopted or not by the company targeted.
On Article 173, the AMF says manager reporting is “very heterogeneous”. It said one of the managers’ Article 173 information was unstructured and its presentation of its process unsubstantiated. Another AMC, it said, did not publish “Article 173” reports for funds for funds €500m.