French ESG label to add double materiality and climate to framework

The committee overseeing France’s Socially Responsible Investment label has published its recommendations for updating the initiative. These include reaffirming the label’s “general” status, demanding double materiality disclosure from funds, and integrating climate into fund strategies.

The changes were made in response to a consultation that closed on 9 September.

The final revision follows an extended review of the SRI label launched by the French Ministry of Economics and Finance in October 2021 with the aim of creating a more “demanding” framework for fund designation. The label was created in 2016 and is awarded after a review by an independent body.

To qualify for the label, funds will in future have to disclose their environmental and social impact as well as the effect of sustainability issues on their portfolio, in line with the EU’s increasing focus on double materiality. In response to investor demand for more effort to tackle climate change, the committee will also require funds to factor climate into their strategies.

The SRI label will continue to use a “best in class” criteria, which excludes the 20 percent of funds that perform worst on ESG metrics.

The committee will work on setting minimum targets, as well as exclusions, to improve the label’s balanced approach to E, S and G. It will also form working groups of experts to execute each of the label updates.

Asset class-specific guidance, which was featured in the original proposals, has been pushed back to 2023, following feedback from the Association Française de la Gestion Financière that this would require a “major adjustment” to the label’s criteria.

Last month, French asset managers expressed concern about the increased focus on climate proposed in the revision of the label. However, the recommendations explicitly state that SRI is not a “green label, nor a climate label”.

The committee added that the emphasis on climate does not mean that other environmental topics are less important, confirming that the balance between E, S, and G remains the first priority, followed by climate.

Michèle Pappalardo, president of the SRI committee, stressed that the core of the label would stay the same and that the main aim was for it to be “more demanding, comprehensible and effective”, in an interview with French finance news outlet B Smart.

The committee said it aims to encourage existing SRI-labelled funds to be more ambitious in their engagement with ESG. Those that fail to align with the new recommendations will risk losing their SRI status.