France requires investor biodiversity targets and corporate engagement reporting under Article 173 tightening

RI looks at France’s recently published rule changes on climate and ESG

In 2015, France arguably led the regulatory way on corporate and investor reporting on climate change in what was once an obscure clause – Article 173 – in a much broader law on energy transition for green growth. 

It’s now taken another major step by requiring the country’s financial institutions to publish their alignment to the long-term biodiversity protection goals of some of the world’s most developed soft law frameworks.

The move comes as part of a further tightening of the rules around Article 173 after a consultation was launched in February this year

The recently published Article 29 of the new Energy-Climate Law revises, clarifies and strengthens those sustainability-related financial disclosures, and importantly seeks to align it to the EU’s new sustainable finance regulations.

Under the new biodiversity reporting rules, French finance institutions must align themselves and their investments to a 2030 time horizon – updated every five years after that – based on respect of the Convention on Biological Diversity signed at the Rio Earth Summit in June 1992. They should also analyse the contribution of their investments to reducing biodiversity impacts, as outlined by the Intergovernmental Platform on Biodiversity and Ecosystem Services (IPBES), and demonstrate an indicator of their biodiversity footprint based on related international guidelines.

The French government said this would align investors to ESG reporting criteria on biodiversity with the new EU rules.

To align its broader ESG reporting rules to the EU’s new Sustainable Finance Disclosure Regime (SFDR), the French government has set a baseline of adherence with additional requirements to those of the EU. 

RI reported last week that national regulators’ ESG fund requirements had triggered SFDR fragmentation fears among some investors.

In terms of Article 8 (products promoting environmental or social characteristics) and Article 9 (products pursuing such objectives) funds under SFDR, France will require asset managers to list all their products in either category and calculate AUM in these ESG-related products as a percentage of total assets.

Information about the use of ESG data in fund decisions is also required, with a stipulation that if any quantitative sustainability information is incorporated then the supplier name, data type and methodology used, as well any risks of double-counting and its avoidance, should all be disclosed. 

France will also require asset managers or their ESG products to adhere to a relevant ESG charter or label. Organisations must also clearly describe the financial, HR and technical resources deployed for the ESG strategy, and their staff requirements and overall costs.

In addition, they will also have to demonstrate governance competency on the above issues at board and managerial level.

On corporate governance and shareholder engagement, France also goes further than the current EU requirements and will require investors to report on their engagement strategy and those companies targeted as well as the results of those discussions. Fund managers’ share voting strategy will also have to be disclosed along with an overall AGM report card. Any investment exclusion decisions will also have to be disclosed.

On CO2 reduction targets, French institutions will now have to publish a clear alignment strategy to Articles 2 and 4 of the Paris Agreement based on quantitative CO2 reduction by 2030, reviewed every five years after until 2050, and including Scope 3 indirect CO2 emissions.

Regarding alignment with the EU’s Green Taxonomy, French institutions also have a long list of criteria they must now publish on current investment allocations to fossil fuels, data used for climate scenario planning and reporting, duration and updating of the evaluation criteria.