French SIF departs from SRI label group

The responsible investment forum cited concerns about the ongoing work to revise the country's SRI label.

The French SIF has left France’s Socially Responsible Investment subcommittee, which is dedicated to promoting and managing the country’s SRI label.

Forum pour l’Investissement Responsable said on Wednesday it had made the decision because the ongoing efforts to update the label is going in a direction that is “far from” its recommendations.

It added that it will “gladly reassume” its role on the committee if the new version “meets the level of requirements which savers are entitled to expect”. The working group also includes asset manager group Association Française de la Gestion Financière and real estate investor group Association Française des Sociétés de Placement Immobilier.

France’s SRI label is currently under review, with more stringent climate criteria at the centre of proposals to update the initiative. The label was created in 2016 and is awarded after a review by an independent body.

A consultation for the latest updates is due to be launched in April once the revisions are finalised. After the consultation period, the updated draft will be sent to the Ministry of Finance before the label update is published in the summer.

Some of French SIF’s demands include introducing significant exclusions, setting minimum climate thresholds in line with the Paris Agreement, and including other investment strategies to broaden the scope of the label.

The SIF said it considers these changes “essential for the clarity and credibility” of the label. Executive director Grégoire Cousté told Responsible Investor that changes need to be made to make the label more robust.

“Among the topics that we’re pushing for is minimum standards on climate – thresholds need to be included in the next revision of the label, otherwise there will be confusion. If zero funds are delisted through this next review, that will be a bad sign.

“The label is currently not demanding enough – most people expect fossil fuels to be excluded when they hear ‘responsible investment’.”

The French SIF said it will respond to the label consultation next month.

The SRI Label committee did not respond to a request for comment but has since released a public statement saying that it regrets the French SIF’s decision while being “surprised” by the move which comes a few days before the launch of the consultation.

Central bank research adds to SRI Label climate concern

The French SIF announcement comes just days after France’s central bank published research saying there is a fairly high chance that a fund awarded France’s Socially Responsible Investment (SRI) label is “less green” than a conventional fund.

Researchers at the central bank said that when analysing the carbon intensity of funds with the label there is a 47 percent probability that a randomly selected SRI fund would have a higher carbon intensity than a randomly selected non-labelled fund. However, the labelled fund would be three times less likely to be among the least green funds.

When the 10 percent most polluting investments were removed the carbon intensities of labelled and non-labelled funds were equal, said the research, conducted by Banque de France’s deputy head of financial savings and securitisation Pierre Bui Quang and economist David Nefzi.

“It is therefore… only at the upper end of the distribution, ie by stripping out the most polluting funds, that certification seems to have the greatest effect,” the researchers wrote.

SRI certified funds are therefore not “green” in absolute terms, but they are “greener” than non-certified funds, they said.

While this aligns with the label’s aim of being a broad-based sustainability label and not a “green label, nor a climate label”, the findings do “not necessarily correspond to the public’s perception” of SRI-labelled funds guaranteeing “environmental excellence”.

The research compared the carbon intensities of SRI-labelled equity funds and conventional alternatives as of December 2021.

The researchers suggested the label’s climate dimension could be reinforced through fossil fuel exclusion criteria, or for guidance to be issued on how the funds will transition to achieve carbon neutrality by 2050. It also said labelled funds should commit to more ambitious targets, or else risk losing their SRI status, echoing the French SIF’s demands.

Guidance published last October by the SRI committee outlined updates to the initiative, including demanding double materiality disclosure from funds and integrating climate into fund strategies, while reaffirming the label’s “general” status.

To qualify under the new revisions to the label, funds will 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 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.