A new ruling from the French government around ESG investing could potentially lead to forced divestments worth billions of euros.
As the Financial Times recently reported, the country has decided funds under its ‘L’investissement socialement responsible’ (ISR) label will no longer be able to put money into hydrocarbon exploration, exploitation or refining projects. Companies that work with coal and ‘unconventional’ hydrocarbons will also be off limits.
The initial moves were announced in November, when Bruno Le Maire, France’s minister of the economy, finance and industrial and digital sovereignty, said he and his department would look at revising the criteria for the ISR label, which had been largely unchanged since 2016.
“We must offer a simple and effective label to allow the French to give meaning to their savings,” said Le Maire. “This is what we are doing with this new ISR label, of which the fight against global warming is becoming a must. In this way, we will make it easier for savers to take the ecological transition into account and for companies to finance their decarbonisation.”
As Expert Investor’s sister publication ESG Clarity noted last year, the move could lead to a €7bn divestment from the energy sector. It surmised that nearly half (45%) of the 1,200 funds labelled as ISR have energy exposure that will need to be addressed before the regulations come into place in March 2025.
Created in 2016, ‘ISR’ was the first state label in France allowing the public to choose savings vehicles integrating environmental, social and governance principles into their management. With the PACTE law, ISR-labelled funds are systematically referenced in unit-linked life insurance and retirement savings plans. Today, 1,174 funds are ISR-labelled – a total of €773bn in assets under management.
‘Sense of scope’
ESG Clarity was referring to a report from Morningstar called French ISR Label Revamp, whose authors noted: “While it is premature to estimate the full impact of the updated eligibility criteria on the current universe of ISR-labelled funds, we can provide a sense of the scope of changes that funds may need to make regarding the fossil fuel sector, which was the most controversial and impactful proposed change.”
They added: “The description of banned companies provided by Finance Minister Le Maire is quite broad and market participants will have to wait for the publication of the final criteria at the end of November to better understand the type of fossil fuel companies that will be affected by the new exclusionary rule.
“Note that if Technip and Gaztransport et technigaz fall within the scope, the impact on their market values would be significant as ISR-labelled funds currently hold 8.3% and 8.7%, respectively, of the companies. The impact on other companies, including BP and Shell would be insignificant, with labelled funds representing only 0.2% and 0.1%, respectively, of their market capitalisation.”
