French investors call for explicit alignment of SRI label to EU regulation

The committee will submit the final label proposal to the French finance minister by mid-July.

French investors and climate groups have called for France’s Socially Responsible Investment (SRI) label to be more explicitly linked to EU sustainable finance regulation in the committee’s latest consultation.

The new framework proposed additional requirements for the label, including double materiality, in line with the demands of the Sustainable Finance Disclosure Regulation (SFDR). It also recommended that funds be required to measure the effect of their investments on ESG by considering the principal adverse impacts (PAI).

However, several respondents to the consultation said this does not go far enough, and that the label needs to be more clearly aligned with SFDR and the EU taxonomy.

In total, the SRI label committee received a total of 53 responses to its latest consultation, but fewer than half of these have been submitted publicly.

Major investor including AXA Investment Managers were notable absentees on the list of public responses. The manager had not confirmed whether it had responded to the consultation at the time of publication.

The consultation – which opened in April – followed an extensive review launched by the French Ministry of Economics and Finance in October 2021 with the aim of creating a more “demanding” framework for fund designation, with more stringent climate criteria at the centre of proposals to update the initiative.

The SRI label was created in 2016 and is awarded after a review by an independent body.

The Institutional Investors Group on Climate Change (IIGCC) said the label “could be more explicitly linked to European regulation” and should be aligned with SFDR and the taxonomy.

It added that the SRI label “should ensure a certain level of consistency in terms of data and product-disclosures across multiple regulatory obligations, including SFDR” to enhance interoperability and consistency, as well as avoid redundant reporting and duplication for investors.

In its response to the consultation, Mirova also called for more explicit links to SFDR and the taxonomy, adding that “all funds applying for the label should be classified as Article 8 or 9”.

At the start of the consultation, Mirova CEO Philippe Zaouati expressed his concern over the label developments, commenting: “It does not answer the current questions at all, and it’s creating a tool that will be an official greenwashing label.”

In its consultation response, Mirova echoed the IIGCC’s statement, saying the label “should require explicit, precise and ambitious environmental and social objectives,” in line with the demands of SFDR, to calculate positive performance indicators on the taxonomy, the percentage of sustainable investment and avoided emissions.

It added that the current limitation to PAI reduces the scope to calculate a fund’s impact.

In its response to the consultation, the French SIF – which left the SRI subcommittee in March owing to concerns about the ongoing label revisions – said the label “must be designed alongside other European sustainable finance regulation and, where possible, with other European labels”.

However, the SIF also noted that the label cannot be guided exclusively by SFDR due to the “lack of clarity” provided by the European Commission in its latest update, which put the onus on investment managers to set their own definition on what constitutes a sustainable investment.

BNP Paribas Asset Management echoed the French SIF’s request for the label to be aligned with other European labels, calling once again for the creation of one European label since the “multiple national labels with varying criteria and exclusions goes against the Capital Markets Union’s objective”.

Data provider Sustainalytics noted that the label’s minimum 20 percent weighting across the E, S and G pillars “seems to deviate from the integrated approach defined by SFDR”, adding that “European regulations refer to ‘sustainability’ risk from a holistic point of view, as environmental risks can lead to social consequences and vice versa”.

The data provider described the SRI label’s evolution as “outdated” in relation to the evolution of the EU regulatory framework.

French giant Amundi – which has 112 SRI-labelled funds – said the label risks becoming a “niche” product due to the restrictions the committee has imposed in terms of investment. It said the label’s objective should be “to produce responsible products which channel capital to transition needs”.

The SRI label committee plans to analyse the various consultation responses before submitting its final proposal to France’s finance minister Bruno Le Maire in mid-July.