French investors to revise SRI-labelled funds to meet new criteria

Investors have welcomed the ‘unexpected’ new SRI label framework, as Morningstar research finds 45 percent of labelled funds are exposed to oil and gas.

French investors including BNP Paribas Asset Management, Mirova and Sycomore Asset Management have welcomed changes made to France’s national SRI label and have begun work to revise their existing labelled funds.

The Ministry of Finance last week outlined that fossil fuel exclusions and requirements for Paris-aligned transition plans would form the basis of the revised label, following a two-year review of the label’s framework and several months of consultation with the industry.

The label was first created in 2016 and has not been significantly revised until now.

The new criteria will require funds to exclude investments in companies linked to coal and unconventional hydrocarbons, as well as those involved in new oil and gas projects. The full framework is due to published later this month.

As part of the launch of the stricter criteria, it is anticipated that several funds will lose their label as the new criteria comes into play.

According to figures released by France’s Ministry of the Economy and Finance, there are 1,174 funds with the SRI label, representing around €773 billion in assets under management.

Research from Morningstar published today found that 45 percent of existing labelled funds have some exposure to the traditional energy sector, representing around €7 billion in assets. It also showed that around 10 percent of funds are invested in French energy giant TotalEnergies.

But Antoine Laurent, advocacy lead at Reclaim Finance, said current discussions with French asset managers are “reassuring” and that the reform is “pushing them to strengthen their investment policies”.

BNP Paribas AM, which has around 40 percent of its funds authorised in France labelled, told Responsible Investor that its objective is to align all its labelled funds with the new guidelines, adding that the preparatory work is already underway.

The spokesperson said they welcomed the revision “which provides clarification”, but added several issues remain unresolved, and that the exclusions represent only a part of the changes.

“It is the combination of new constraints – exclusions, increased selectivity, new definition of investment universes, and the transition element – that will determine the impact of the new rules on labelled funds,” they said.

Incorporating the transition element is “as important” as the exclusion criteria, for Héléna Charrier, responsible solutions head at La Banque Postale Asset Management, who said the technical criteria for achieving this “could have a much more profound impact” on the label’s evolution.

Existing funds will have one year from the framework’s implementation in March to amend their criteria to meet the new label requirements, as proposed in July by the SRI label committee that oversaw the label revisions.

Anne-Claire Imperiale, Sycomore AM’s head of ESG and stewardship, acknowledged there is a “small risk some asset managers might decide not to put the necessary resources to maintain their SRI label status”, owing to heavier disclosure requirements, but said her expectation is most funds will adapt their portfolios to the new requirements.

She added it was necessary for the label to strengthen its requirements to both meet investor expectations for a responsible investment solution, and lower the possibility of “interpretation” to avoid “SRI-washing”.

Imperiale described the fossil fuel exclusions proposed in the new label as a “first step in the right direction” and “sufficient”, adding that it will allow the label to remain an ESG label, rather than an environmental label.

For Sycomore AM, the “large majority” of its labelled funds will not be impacted, and only a few will need amending, due to its existing requirements, which demand “standards higher than those required by the current version of the label, having defined exclusions for SRI funds for many years”, she explained.

Mirova CEO Philippe Zaouati said he welcomed the government’s “unexpected” decision, adding that Mirova does not anticipate having to revise any of its fund criteria to retain the label.

He said that by becoming more demanding, the label will “gain strength”, and the French ministry has “sent a strong political signal”.

“A label that is too easy to obtain is a marketing label that serves no purpose. This had become the case with the French label,” he said.

This was echoed by Grégoire Cousté, executive director at the French SIF, who said that if no fund was to lose its label, it would mean that the revisions were not demanding enough.

“Some will probably change their criteria and strategies, and others won’t and will de facto lose their label,” he said.