12.11.2021
The French Ministry of Economy and Finance created in 2016 in the EU the only indicator for choosing responsible and sustainable investments; the tool ISR label. Socially Responsible Investment (SRI) aims to reconcile the objectives of economic performance and social and environmental impact by financing companies. This regards all sectors of activity contributing to sustainable development. It makes it possible to redirect the choice of investment towards extra-financial criteria (respect for the environment, quality of life at work, etc.).
What does ISR label mean?
To make it easier to understand the SRI label, let us note the following points:
– An investment fund is a portfolio of assets managed by a management company.
– A socially responsible investment fund (SRI) allows you to invest in funds that take into account financial and extra-financial criteria
– It is possible to invest in SRI funds via life insurance, PEA, retirement or employee savings products, or via a securities account.
In France, the Energy Transition for Green Growth Act requires large companies to publish extra-financial reports. It is to facilitate this process that ESG criteria come into play
ESG criteria:
ESG criteria (Environmental, Social and Governance) are analytical criteria that allow for the evaluation of the consideration of sustainable development and long-term issues in the strategy of companies.
– Environmental: waste management, reduction of greenhouse gas emissions and energy consumption, sustainable prevention of risks linked to industrial disasters (oil spills, soil contamination, etc.). In short, everything that characterises the actions of an eco-responsible company.
– Social: respect for employees’ rights, social dialogue in management policy, parity and the number of disabled people, prevention of work-related accidents, staff training.
– Governance: fight against corruption, respect for transparency of management remuneration, the relationship between shareholders, management and the board of directors.
How to obtain the SRI label?
1) Check the disposition of your fund:
For an application to one of the certification bodies, the fund must provide information on the nature and composition of the portfolio.
The three bodies accredited by the French Accreditation Committee (COFRAC), are carrying the fund labelling audit:
– Afnor Certification,
– Deloitte,
– EY France.
Then, they carry out an initial eligibility analysis. If the criteria are met, the application is admissible and the fund can proceed to the second stage.
2) Check that the fund meets the criteria for labelling.
Available on the label’s reference framework, the selection is made on the following points:
I- General objectives: ensure that the financial and extra-financial objectives are clear, correctly described to investors and well-integrated into the investment policy
II- Analysis and rating: Check the ESG analysis and rating methodology used by the companies in the portfolio
III- Development: Take ESG criteria into account in the construction and life of the portfolio
IV- Commitment: Analyse the ESG commitment policy towards the companies in the portfolio
V- Transparency: reinforced.
VI- Highlighting the monitoring of the ESG performance of the fund’s portfolio
Once the audit is completed, the certification body draws up a report presenting its conclusions and commenting on any shortcomings identified in relation to the labelling criteria. The decision to award the SRI label depends on this report.
In the event of a positive response, the SRI label is valid for a (renewable) period of three years. During this period, checks may be carried out to ensure that the label requirements are met.
The gestion of real estate
Launched in July 2020, the SRI real estate label highlights savings and investment products that seek to reconcile financial and non-financial performance by integrating ESG criteria into their investment and management processes. This gives subscribers to Société Civile de Placement Immobilier (SCPI) units the means to actively participate in the transformation of the real estate sector. It is necessary to achieve the climate objectives set by the public authorities (Tertiary Decree, National Low Carbon Strategy, etc.). Indeed, the building sector alone accounts for 43% of energy consumption and nearly a third of French greenhouse gas emissions.
More and more SCPIs are integrating ESG criteria into their investments, forced by stricter regulations on the energy efficiency of buildings (Decree on the tertiary sector), but also by financial interest. Buildings with an environmental label have a longer lifespan and better meet the expectations of occupying tenants.
The advantages of this label
Whether it is to comply with existing legislation, to obtain the SRI label or to become actively involved in the ecological transition, everyone benefits today from taking interest in the subject. The challenges of tomorrow require new solutions. And SRI is one of them to make your savings grow while acting for sustainable development.
The risk/return ratio of SRI-labelled funds is often higher than average. At term, we can hope that the reality of climate change and therefore of the world’s economy and resources; will make extra-financial criteria as important as financial ones.