French SRI Label Strikes Fossil Blow

    Stockholm (NordSIP) – The French Finance ministry has approved the total exclusion of most fossil fuel companies from the country’s official Socially Responsible Investment label.  On November 7, 2023, the governing committee of the ISR Label (Investissement Socialement Responsible) announced that following months of discussions, lobbying and deliberations, final approval of new stricter eligibility criteria had been green lit by Finance Minister Bruno Le Maire.

    The ISR label was created in 2016 and thus far covers 1,200 investment funds marketed in France.  In response to the increased sense of urgency communicated by the UN’s Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA) and others, the finance minister asked the ISR committee to revisit the label’s guidelines with a view to implementing more stringent guidelines for fund providers.

    Banishing carbon bombs

    Concerned by reports of intensive lobbying by certain asset management firms and corporations intent on preserving a “best-in-class” clause allowing energy firms to be included provide they can demonstrate investments in low carbon technologies, a group of 60 prominent individuals and representatives from the business sector, academia and non-governmental organisations (NGOs) wrote an open letter to French Prime Minister Elisabeth Borne.  In the 31 October 2023 letter, they urged Prime Minister Borne to sanction the strict exclusion of energy companies with expansion strategies that conflict with the nation’s stated climate goals.  At the heart of the controversy sits France’s flagship energy firm TotalEnergies.  Despite its publicly stated intention to become a leader in renewables and above industry average investment in low carbon activities, TotalEnergies is participating in 33 new fossil fuel projects that are described as carbon bombs in a newly published report by Greenpeace France (French language).

    The new ISR label exclusion criteria reflect the IEA’s 2021 Net Zero by 2050 roadmap, which precludes any new fossil fuel projects.  This also signals a more decisive approach by the French authorities ahead of the upcoming COP28 event in Dubai.  In contrast to the new ISR guidelines, the joint COP statements have so far failed to include language reflecting any form of commitment to phasing out fossil fuels.  Should France bring this new mindset to the negotiating table it could set the scene for a somewhat more constructive level of debate at the climate conference, which begins on November 30.

    Alongside the fossil fuel related amendments, the ISR label will now prescribe clearer expectation regarding the management of controversies, engagement activities and shareholder voting expectations.  There has also been an effort to reflect changes in European sustainability regulations, with new requirements on Principal Adverse Impacts (PAIs).  Following today’s ministerial approval, the ISR committee will now work on finalising the new guidelines for publication by the end of November and full implementation in the market on March 1, 2024.

    Image courtesy of Joe from Pixabay (edited)
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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